Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Head of Macroeconomic Research
Summary: The Virginia governor's race was seen as a referendum on president Joe Biden's first year in office. In this state, Biden won by 10 points in the 2020 presidential election. The incumbent Democratic Governor Ralph Northam was backed by the Democratic administration. He lost against a novice Republican candidate, Glenn Youngkin, who was careful to thread the needle between accepting support from former president Donald Trump, while avoiding a full embrace of his style. This is a blow to Biden whose approval ratings have fallen in recent months following the disastrous withdrawal from Afghanistan, skyrocketing inflation and a legislative agenda that has stalled in Congress. The historical record suggests that the party of a newly elected president will lose some power in the ensuing midterms. But expect the 2022 midterms to be a more severe defeat for the Democrats than most currently expect.
What happened ?
Presidents usually get « shellbacked » in midterm elections
The Democrats brushed off the election results. They said the party of a newly elected president usually does poorly in the ensuing elections, including in the midterms. This is true. It usually happens no matter what the party does or does not. Since 1862, which marks the start of the Republican-Democrat duopoly, 40 House of Representatives elections have taken place. The President’s party lost seats in 37 of these 40 elections – meaning 93% of the time. There are some exceptions : 1934, 1998 and 2002. In these elections, the President’s party won seats in the House of Representatives. It was partially explained by partisan realignment. The President’s popularity does not change anything. Some of the most popular presidents lost the midterms : Dwight Eisenhower (1958), John F. Kennedy (1962) and Ronald Reagan (1986), for instance. Lost seats can go up to 127 (1894). But it is most of the time under 50. In our view, unless there is a major turn of events, it is a done deal that the Democrats will lose grip on the Congress and a relative majority in the 2022 midterms. Expect a brutal defeat.
But the Democratic Party’s problems are more deep-rooted
The Democrats can draw new electoral district boundaries and facilitate exercising the right of vote. This might be of some help. But it won’t be enough.
The Democratic Party’s problems are more deep-rooted. There are mostly three issues :