While the remaining votes are being counted in Georgia, it seems very likely that the Democratic Party wins both of the two special Senate runoffs with mostly Democratic counties left to be counted. This implies a Democratic Party clean sweep with the party controlling the presidency as well as both chambers in Congress. However, it is a very narrow one, as Vice President-elect Kamala Harris will cast tiebreaking votes in the 50-50 Senate and the Democratic Party lost seats in the House in November. History tells us it is much easier to get things done when one party controls everything, as Democrats and Republicans have had difficulties cooperating for at least 30 years.
The election victory means the following (Vox also has a great overview).
- Chuck Schumer (D) will become Senate Majority Leader deciding what will be put forward to a vote in the Senate. The current Senate Majority Leader Mitch McConnell (R) has used this power to not put legislation, which passed in the Democraticcontrolled House, to a vote in the Senate.
- It becomes much easier for President-elect Joe Biden to get his Cabinet appointments, even the more (from a Republican perspective) controversial ones, confirmed by the Senate (requires simple majority).
- The same goes for other nominations like judges and Federal Reserve board governors.
- It becomes much easier for the Democratic Party to pass further near-term fiscal easing (2,000 dollars one-time check to all Americans versus 600 dollars agreed in the package last month, more local and state aid and another extension of the temporarily higher unemployment benefits when they expire in March). It is possible that the Democratic Party can join forces with more centrist-leaning Republicans in the Senate to get above the 60 threshold on some of these issues. However, it is not as easy as in 2009 under President Obama when there were 59 Democratic senators.
- Longer term, it becomes easier for the Democratic Party to make bigger changes to economic policy (e.g. tax hikes and more investments in green energy and R&D) using the budget reconciliation mechanism requiring only simple majority (the same mechanism the Republican Party used to pass the latest tax reform). This means the Republicans cannot block economic policy changes by filibustering them in the Senate. Given the slim majority, we expect the actual changes to be watered down due to internal disagreements in the Democratic Party.
- If necessary, the Democratic Party can use the ‘nuclear option’ to abolish the filibuster system (which is preventing legislation to pass the Senate by a simple majority). Joe Biden has not endorsed this so far, however.
Markets have sent the 10Y US Treasury yields above 1% and the USD weaker on the back of the likely Democratic sweep. We think the election result is supportive for market sentiment, as we will get a more stimuli-friendly political leadership in the US but with limitations on how much taxes can be hiked due to the slim majority
