Remember the debt ceiling fights? Now add a recession

Americans were already unhappy with the economy of 2022. Republican control of the House threatens to make 2023 worse.

- 

As of press time, the GOP looked poised to win a majority of seats in the House of Representatives after Tuesday’s midterm elections—albeit by a smaller margin than forecasters expected. That likely means less government support in the event the Federal Reserve’s steep interest-rate hikes trigger a recession as the cost of quashing the highest inflation in a generation. Not only that, but a fight over the federal debt limit risks making a potential downturn deeper. “Ordinarily you would like to think that governments would be in a position to offer some assistance and support to households and businesses through very tough economic times,” says James Knightley, chief international economist at ING. “But given the partisan nature of politics, that seems highly unlikely to be achievable.”

The economy loomed large over the midterm elections, repeatedly topping the list of voters’ concerns in polls before the election. But the fastest inflation in a generation didn’t prove enough to give Republicans the wave they anticipated. Other issues, including abortion, may have staved off larger GOP gains, judging from exit polls.

The outcome, though still unclear, will likely prevent Democrats from advancing any more of their economic agenda. Republicans have repeatedly pointed to Joe Biden’s $1.9 trillion American Rescue Plan, along with other government spending, as a key driver of inflation.

The biggest threat to the economy would come next year, when many on Wall Street predict the US will enter a recession. Several economists say that the brinkmanship around the debt ceiling— the maximum amount the nation can borrow to meet its existing legal obligations—could heighten uncertainty, deepening a downturn.