United States – Policy Battles Shift into Lower Gear

( ) Indicates change in rating.                                       * Indicates forecast of a new regime.

Policy Battles Shift into Lower Gear

It is highly doubtful that the often prickly relationship between President Barack Obama and the opposition Republican Party majorities in both congressional houses will warm to any significant degree in the final year of Obama’s presidency. Nevertheless, the focus of both the Republicans and Obama’s Democratic Party on the presidential and legislative elections scheduled for November 8 will likely discourage either from courting controversy that might undermine their parties’ electoral prospects.
With Obama’s most ambitious goals achieved (expanded availability of health insurance, the Iran nuclear deal), in the hands of the Congress (the Trans-Pacific Partnership), or off the table (immigration reform), and agreement reached on a spending plan that covers the remainder of his term (or very nearly so), his domestic agenda is likely to involve little more than tinkering around the edges.
Looking ahead to the 2016 elections, it is highly doubtful that the Republicans might lose control of the House of Representatives, but with most of the 34 Senate seats in play this year currently held by Republicans, the Democrats will have an opportunity to pick up the minimum of five seats they will need to regain control of the Senate. From the Democrats’ perspective, failure to regain control of the Senate will not be a crushing blow if they retain the presidency. However, a loss in the presidential election would be a stunning setback, and Republican control of the White House and both congressional bodies would be devastating for the party.
The next president could end up appointing replacements for at least two, and possibly four, justices on the nine-member Supreme Court, decisively tipping the currently closely balanced court either to the left or the right. Based on the view expressed by some of the conservatives currently sitting on the Supreme Court, it is quite conceivable that a solid conservative majority could drastically curtail the regulatory powers of the state, a development that would have existential implications for the Democratic Party.
The release of disappointing growth estimates for the fourth quarter of 2015 coincided with (and reinforced) an even uglier performance in the stock market since the start of the year. In contrast to the previous recent bouts of volatility, the latest display of investor skittishness is occurring against a backdrop of anxiety about the strength of the US economy, fueling speculation of a possible recession.
However, key indicators suggest that such concerns are overblown. Household spending, which accounts for roughly two-thirds of US economic activity, continued to be the main driver of growth in the second half of the year, supported by a strengthening labor market, rising home values, and lower fuel prices. The latest manufacturing numbers suggest that external factors (and a strong dollar) could weigh on overall economic performance in 2016. On balance, however, the economy is forecast to remain on a fairly stable growth trajectory, with household spending, supported by continued (if somewhat slower) job gains, accelerating wage growth, supportive financial conditions, and lower energy prices, contributing to real GDP growth of 2% or more in 2016.

Economic Forecasts for the Three Alternative Regimes