Last night’s U.S. election results should bolster the outlook for the U.S. economy, and may reduce the likelihood of disruptive showdowns over fiscal policy, BMO Economics suggests.
In a new report, BMO notes that the Republicans “won big” in the latest mid-term elections, by extending their majority in the House of Representatives, and by taking back control of the Senate. They also did well in the state governor races, it says.
However, the Republicans didn’t win enough seats in the Senate to potentially override a presidential veto. And, as a result, BMO says it doesn’t expect a wave of new Republican legislation. Instead, it says that “the Republicans will have a somewhat better chance of pushing through legislation to reform corporate tax laws, reinstate the bonus depreciation allowance on capital equipment, pass the Keystone XL pipeline, and repeal the medical device tax. The first two issues would add wind to the sails of already-strong business spending and hiring.”
Additionally, the report notes that the more moderate Republican establishment fared better than extreme right wing Tea Party candidates, “suggesting the Republicans might work more cooperatively with the Administration and congressional Democrats. This would decrease the chance of renewed showdowns over the continuing resolution (that is currently funding the government and expires December 11), the debt ceiling (March 2015) and the budget deficit, paving the way for a further improvement in business confidence in 2015.”
Overall, BMO says that the results of the mid-term elections “could moderately support business sentiment and our outlook for 3% U.S. GDP growth in 2015, especially if the increased responsibility that comes with controlling a branch of government encourages the Republican Party to work with, rather than against, the Administration on some measures.”