Bloomberg Talks
00:00:19 · Abby Joseph Cohen
[00:00:19] S0: Well, I think it's fair to say that we don't quite know what the market reaction will be beyond this initial reaction. Clearly, there's a sigh of relief in many parts of the United States. that the Democrats did have this decisive win, and not just in the Congress, but very importantly, at state houses. And I think that we need to recognize that even with congressional control turning over to the Democrats, we don't quite know what's going to be happening at this point. But clearly, thus far, we have seen a repudiation of Republican leadership, and also of the current do-nothing Republican Congress. The Johnson-Thune Congress was distinguished for passing very little legislation. And one of the bills they did pass, the very interestingly named so-called One Big Beautiful Bill, we have not yet seen the ugly parts of that. And those are still coming down the pike this year and next. It will include higher health care costs. It will include closures of hospitals, including in rural areas. It includes dramatic reductions in things like food assistance through SNAP and the Women and Infant Children program. And so we have not yet seen the end of the negative impact of legislation that has already been passed. So, Abby, how does this blue sweep change your outlook when it comes to U.S. growth in the next two years, if it even does? Something that we don't yet know is how the president will respond today. I, for one, was very pleased to see that there was not violence at the polls. There has not yet been any sort of challenge of a notable nature to these results. So I think that's positive. But we don't yet know how the President and his administration will respond. And let's keep in mind that one of the things that has happened in recent years has been enormous growth in executive power. So the Congress may vote for something, for example, but the president can veto it. In addition, we have seen over the past couple of years that various government cabinet positions and agencies have basically ignored the Constitution. One example of that would be the Office of Management and Budget.
00:02:48 · Abby Joseph Cohen
Russell Vought, who was one of the architects of Project 2025 as director of OMB, has specifically ignored Congressional bills that were passed and signed by the president, and he's refused to pay out those appropriations in any number of categories, including scientific research. We also know that executive agencies have, in some cases, shied away from their responsibilities to be regulators. We have seen dramatic shifting and reductions in staff at places like the IRS, the SEC, the CFTC. And even if you're not a big supporter of heavy-duty regulation, I think most people in this country believe in some sort of guardrails, and we need to make sure that those are re-established. That is under the purview of the executive, not of the Congress. And one other area we need to be concerned about, one of the agencies that has been truly eviscerated during the last two years has been CISA, which is the group that looks at things like cyberterrorism, cybercrime, and we don't have people basically running that organization in any meaningful way at this point. So in order to assess what the economic impact going forward will be, we don't yet have enough information. But clearly, voters have spoken. They have indicated that there are things that they are not happy with. But there's one important test coming up for the current administration and the existing Congress. And that has to do with the budget deficit. Under the so-called One Big Beautiful Bill, we have seen an enormous run-up in deficits, both in terms of dollars, but also as a percentage of GDP. And we're going to be running out of running room in early December when we need to see if the debt limit will be raised. And let's see what sort of negotiation the president is willing to do with the existing Congress in terms of getting that done.
00:04:56 · S1
[00:04:56] S1: A lot to unpack there. And I wonder on this idea, because clearly you are concerned about the direction of a lot of things. And as you note, the president has the veto power. Is there anything this Congress can do? We've heard from the incoming oversight committee chair saying lawyer up. Does that, investigations, anything of those lines reverse or slow down some of the trends, or do we need to wait for 2028?
00:05:19 · Abby Joseph Cohen
[00:05:19] S0: So I'm an economic analyst and a market analyst, not a political analyst. And so the Congress may very well decide to pursue many of those investigations. What I would hope is that the incoming Congress in January do things like approach economic policy. For example, take back congressional control of tariffs. I think that would be a very useful thing. I also think to reestablish some of the soft power that the United States has had in terms of reestablishing global alliances. You know, soft power is economic power. The willingness of other nations to be with us as part of a trade bloc and so on is critically important. I'm still scratching my head as to why The Trump administration concluded that wood chips from Canada that get imported by farmers in Wisconsin and upstate New York, why that was a security risk. So we need to have some more realistic approaches to economic policies, including tariffs and so on. And I also hope that we will see that the new leadership in the Congress will move in a very moderate way. And I think that that's entirely possible You know, among the winners last night were not just Democrats, but also moderate Republicans who did reasonably well in their races. And I think if compromises can be reached in terms of moving forward with things that are pro-growth, a pro-growth agenda, that will be very helpful. I'd love to see a reestablishment of emphasis in this country on things like funding scientific research.