Piper Sandler analysts suggest that recent weak economic data and market reactions are unlikely to significantly impact the upcoming election unless the economic situation deteriorates substantially.
In a note to clients Wednesday, the firm argues that “any kind of policy response before the election would require a crisis atmosphere.”
The note emphasizes that while a downturn, especially a recession, could profoundly influence next year’s fiscal policy debate, the current economic conditions do not yet warrant immediate bipartisan action.
Piper Sandler states: “Even if there is a broad consensus the economy is likely headed into recession, it’s hard to imagine a bipartisan policy response making its way through Congress before the election.”
They highlight that both Donald Trump and congressional Republicans are unlikely to support pre-election voter checks, requiring more than just a stock market correction to provoke a congressional response.
President Biden has actively pursued unilateral actions, though many have faced legal challenges. Piper Sandler analysts are skeptical about the available measures he can deploy without congressional support.
They foresee that “if the economy does fall into recession over the next six months, it could have a big impact on next year’s agenda.”
A key driver for next year’s fiscal package is the scheduled expiration of the Trump tax cuts. However, Piper Sandler says a recession could introduce new variables affecting the fiscal policy landscape.
The firm’s note recalls the extension of the Bush tax cuts during President Obama’s term as a response to the great financial crisis, suggesting a recession could similarly raise the likelihood of a more stimulative economic policy response.
Piper Sandler concludes that while Trump has proposed several new tax cuts, these would likely have a better chance of enactment if the economy enters a recession.
