• Democrats have used unified government to deliver some major pieces of legislation over the past two years, though they did not pass the key ‘social infrastructure’ pledges from the 2020 campaign.  


• Biden’s large $1.9tn Covid relief legislation shaped an initially fast but also very inflationary post-pandemic recovery. Latterly, the Inflation Reduction Act created winners and losers across the corporate sector via its impact on climate, healthcare and tax policy, and is set to accelerate America’s energy transition. 


• The Democrats are likely to lose the House in the midterm elections, as the party battles the headwinds of incumbency, inflation, redistricting and having more marginal seats to defend. The Senate is a closer call, but Democrats are more likely to hold their majority given the favorable match-ups and electoral map.  


• A split Congress would see Democrats lose control of the legislative levers of government. That should lead to partisan gridlock, stymying the President’s legislative agenda and push him towards more active foreign policy and executive actions. This would also constrain any fiscal response to a recession, putting the onus on the Fed to drive the recovery.  


• Democrat losses are firmly baked into market consensus, but there is a chance they can hold on to the House, especially if issues like abortion rights help energise voter turnout. This would open the door to more legislative action, but the ambition will depend on their margin and the extent to which Senators Manchin and Sinema retain their effective veto power. 


• The results will also shape the narrative of which party is on the right path leading up to the more important 2024 presidential elections. We are watching how Trump-sponsored candidates fare especially closely. 

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