Election Surprise: For the Economy, Maybe Just Another Bump in the Road

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We woke up this morning to a new era.

For the past several years, the United States has had either a Democrat-controlled government or a divided government. As a result of yesterday’s vote, Republicans will soon control the presidency, the Senate, and the House.

Throughout the campaign, much of the media coverage on both sides has verged on the apocalyptic, and, indeed, there may be substantial challenges as a new administration comes into power. But the reality is that the sun will continue to come up each day, and the country will move on.

Markets will be watching Trump's policy moves

In the wake of the election, financial markets around the world pulled back significantly. Markets hate surprises, and this is a big one. As we recently saw with the Brexit vote, however, a short-term shock doesn’t necessarily spell longer-term problems. Indeed, after a sharp drop, S&P 500 futures have partially bounced back.

Whether the initial pullback worsens depends on if Donald Trump reaffirms some of his policies that appear more economically risky. How he deals with NAFTA, for example, could either reassure markets or rattle them further. He will face considerable pressure to start putting policy specifics in place very quickly.

The other piece of the puzzle will be how Trump works with the Republican Congress. On the face of it, this should be a good partnership, as all are from the same party. At the same time, Trump’s relationship with the party has been fraught throughout the campaign, and some of his policies are at odds with Republican orthodoxy. Certainly, his victory speech was encouraging in this regard, as he asked for the support of those who did not back him, and everyone involved has substantial incentives to act in unison.

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