Opinion polls and prediction markets have recently pointed to Donald Trump not only leaning toward winning the presidential election, but also pointing to Republicans flipping the Senate and retaining their majority in the House.
A Republican victory would give President Trump more freedom to enact his own policies. The U.S. president has broad powers over immigration and customs, but changes to tax and spending policies require approval from Congress.
According to the latest poll analysis of 538 people, Trump has a 53/100 chance of winning, while Kamala Harris has a 47/100 chance of winning. The probability that Republicans will take the Senate majority from Democrats is 87/100, and the probability that they will control the House is 53/100.
Prediction markets are showing similar odds for Congress and wider odds for the White House. Carsi said Trump has a 62% chance of winning the presidential election, and Republicans have an 85% and 52% chance of winning the Senate and House of Representatives, respectively.
Meanwhile, according to Interactive Brokers’ new IBKR Forecast Trader, Mr. Trump has a 63% chance of winning, but Democrats have just a 13% chance of taking control of the Senate and a 48% chance of flipping the House.
This is a sharp reversal of fortunes from the summer, when Kamala Harris and the Democratic Party were riding a wave of enthusiasm after she took over the top job from President Joe Biden. Top pollster Frank Luntz attributed the loss of momentum to a shift in campaign strategy away from a pro-Harris message and toward a more anti-Trump message.
For the economy and financial markets, the stakes could be even higher with a landslide Republican victory in November.
That’s because the former president has hinted at various tax cuts and even eliminating the income tax altogether in favor of replacing revenue with tariffs, which could worsen the federal deficit.
His pledges to raise tariffs across the board and begin mass deportations of illegal immigrants are also expected to lead to inflation, potentially putting pressure on the Fed to keep interest rates steady for an extended period of time.
Mr. Trump and his allies have also signaled plans to increase their influence over Fed policy and policy appointments, which must be approved by the Senate.
Jose Torres, senior economist at Interactive Brokers, wrote in a note Wednesday that last week’s market decline was also due in part to election fears, as “red sweeps are occurring on Wall Street and across Washington.” .
Additionally, Yardeni Research points to the recent spike in U.S. bond yields and believes that “bond vigilantes” are concentrating on financial markets. Investors are against the Federal Reserve’s half-point interest rate cut last month, but they are also evaluating the fiscal outlook.
“Bond vigilantes believe that no matter which party wins the White House and Congress, fiscal policy will only increase the already ballooning federal deficit and accelerate inflation,” said Ed Yardeni, president of Yardeni Research. “That’s why they might vote against Washington.” and Eric Wallerstein, the company’s chief market strategist. “The next administration will face more than $1 trillion in net interest spending on the growing federal debt.”
