Less wiggle room for Biden?

The US midterm elections take place on 8 November 2022. No one is expecting any major surprises: the most likely outcome is that the Republicans gain a majority in the House of Representatives and the Democrats hold on to the Senate. However, it is important to keep a close eye on the results in the key states.

Only once since the end of the second world war has the party of the incumbent president gained seats in the House of Representatives at the midterms following his first two years in office. The Republican George W. Bush benefited from a surge in public support in the year following the 9/11 attacks but on all other occasions, the president’s party has suffered losses – in some cases heavy ones.

How does the situation look this year, under the presidency of Democrat Joe Biden? The combination of Biden’s very poor poll ratings, his lack of success in implementing his extremely ambitious agenda and, critically, a fuel price of more than five dollars a gallon that has strongly depressed voter sentiment means that losses at the upper end of the historical range (between 40 and 60 seats) were expected until very recently. But the situation has now improved significantly. While a Democrat majority in the House of Representatives still seemed completely unrealistic two months ago, there is now a faint chance, according to US expert and senior economist Sandra Ebner from Union Investment’s Research & Investment Strategy department.

Democrats are likely to benefit from current developments

Ebner is basing her assessment on the latest developments in US politics. Biden’s recent successes, such as the signing of the Inflation Reduction Act and the PACT Act (Promise to Address Comprehensive Toxics), have shifted the media narrative about the president in a positive way. The following three factors should also play into the Democrats’ hands:

  • The Supreme Court’s controversial abortion decision appears to be a good motivator for getting out the vote. This is suggested by the outcome of a referendum on a constitutional amendment in Kansas where a clear majority of voters in the Republican-dominated federal state voted against a restriction on abortion rights. The landslide victory has been attributed to extremely high voter turnout.

  • Fuel prices have recently come down by more than a dollar a gallon. The price is now back below four dollars across the country – and the trend is downwards. The positive effect of this on voter sentiment is evident from the consumer confidence figures. So far, the Republican campaign strategy has focused almost exclusively on blaming Biden and the Democrats for the high inflation rate. This strategy is likely to be less successful when fuel prices are falling.

US: Consumer confidence* is slowly starting to increase again

Figures from February 2014 to July 2022

US: Consumer confidence* is slowly starting to increase again
Source: Institute for Social Research (University of Michigan); 2 August 2022. * University of Michigan Consumer Sentiment Index (MCSI)
  • The execution of the search warrant on the home of Donald Trump and the fallout from this make the Republican former president a relevant campaign issue again. This gives the Democrats another opportunity to make the election a referendum on Trump – especially if he were to announce his intention to stand in the 2024 presidential elections ahead of the midterms. If Trump becomes the dominant campaign issue, the attractiveness of Republican candidates may suffer.

These – from a Democrat perspective – positive developments are also reflected in the polls where the two parties are currently neck and neck. But Sandra Ebner does not think this is enough to change the baseline scenario of a Republican majority in the House of Representatives. This assessment would change only if the recent momentum continued to build. This could happen if more incriminating details were to come to light from the ongoing investigations into Trump, for example, or if there were further attacks by Trump supporters on the US security agencies.

The situation in the Senate is different. Here, she believes the Democrats have a good chance of defending their slender majority. The factors mentioned above will help here, too. But even more important is the weakness of some Republican candidates who have won their primaries thanks to Trump’s endorsement but are likely to be less attractive to the wider electorate. All eyes are on five seats where the Republican candidate is in the ‘election deniers’ camp (candidates who still do not recognise Joe Biden’s 2020 election victory). In Arizona, Georgia and Nevada, this has improved the chances of the Democrat incumbents holding on to their senate seats while in Pennsylvania and Ohio, the chances of Democrat gains are looking quite promising.

What are the implications of the election result?

It doesn’t matter whether the Democrats lose both chambers or just one – the period of active government in terms of the ability to enact new legislation would be over for Biden either way. If the Democrats succeed in holding on to the majority in the Senate, Biden would at least have the freedom to make appointments to posts requiring Senate approval (judges, regulatory authorities). However, the House of Representatives will launch investigations into misconduct by the Biden administration and his family. The president is even likely to face impeachment, although it would have little prospect of success in the Senate.

If, against all expectations, the Democrats succeed in defending their majority in both chambers, Biden could potentially still have the opportunity to push through more parts of his social and tax agenda. But this would require at least two additional seats in the Senate. Union Investment does not expect any of the possible election outcomes to have direct implications for the capital markets.

The outcome of the election could however be a blueprint for the 2024 presidential elections, stresses Ebner. This is because there has been a notable development in the states that were key to the 2020 presidential elections. Of 87 Republican candidates in six federal states, 54 can be said to be in the ‘election deniers’ camp. Of the ten candidates for offices that have influence over the certification of election results (governors and secretaries of state), seven are election deniers who have said on record that they would not have certified Biden’s victory in their state. There is little reason to think they would act any differently in 2024. Should several of these candidates win in November, there will be grave political risks for the 2024 presidential election year.

The past week has shown one thing: Trump’s support among the Republican base is stronger than ever. The results of the primaries have delivered a clear message. Of the ten House Republicans who voted for the second impeachment of Trump, only two are standing for re-election in November. The rest either lost their primaries against a Trump-backed candidate or have ended their political career prematurely. If Trump seeks nomination, he is almost certain to get it.


As at 18 August 2022.

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