With the remarkable midterm election results, it is only natural to ask how Washington might change. Political forecasting, of course, makes market and economic forecasting look almost easy. Still, without any implication of what is good or bad or what should happen or not, the logic of the situation suggests a number of future congressional initiatives. Many likely will fail, vetoed by President Obama. But they will occupy the attention of financial markets and so affect pricing. Here are 10 of them to watch out for1:
1) Though the Republicans seem to have moved away from the idea of repealing the Affordable Care Act, they may well advance legislation to repeal the unpopular medical device tax presently in the law.
2) The Republican Congress also may look to remove the employer mandate from the law.
3) Congress may ease some of the capital requirements presently built into the Dodd-Frank financial legislation, particularly those aimed at large insurance companies.
4) There also is talk about imposing more governance and accountability on the Consumer Financial Protection Bureau created by Dodd-Frank, perhaps by creating an inspector general for it or a board of directors.
5) Also on the financial side, there is discussion of streamlining the processes surrounding financial institutions deemed too big to fail, though little detail on this point has emerged.
6) The Republican Congress also will likely strive to rein in President Obama’s regulatory agenda, especially the Environmental Protection Agency’s dealings with power utilities.
7) Congress likely will push for the Keystone XL pipeline and perhaps also introduce measures to expand facilities for the export of natural gas.
8) If anything, the Senate confirmation process for presidential appointees will become even tougher, most especially for any replacement of Attorney General Eric Holder, who is retiring.
9) With Senator John McCain (R-AZ) now chairing the Senate Armed Services Committee, a review of the missteps in Benghazi will remain in the headlines, as will efforts to “do more” against ISIS (Islamic State of Iraq and Syria) and in the Middle East generally. So far, that “more” remains vague and seems to exclude “boots on the ground.”
10) Debate will heat up on the expiring legislation that authorizes surveillance by the National Security Agency, though this would have been the case regardless of the election results.
Besides these 10 points, there is a potential for welcome tax reform, either on the corporate side alone or more generally. Though the two parties remain far apart on many of the details, as do the president and Congress, all the proposals share a general desire to lower statutory rates and make up the revenue difference, to a degree or entirely, by ridding the tax code of deductions and other breaks. There is room here for compromise, if the parties involved are capable of it. Such moves, probably more than anything else, would help the economy and financial markets.
1 See, Nick Timiraos and Colleen McCain Nelson, “Obama, GOP Begin Laying Out Road Map for Future,”The Wall Street Journal, November 5, 2014, and Vicki Needham, “Five Things That Would Change in a Republican-Led Senate,” The Hill, November 2, 2014.
The opinions in the preceding economic commentary are as of the date of publication, are subject to change based on subsequent developments, and may not reflect the views of the firm as a whole. This material is not intended to be relied upon as a forecast, research, or investment advice regarding a particular investment or the markets in general. Nor is it intended to predict or depict performance of any investment. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information. Consult a financial advisor on the strategy best for you.
