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At Political Conventions, Policy Waits in the Wings

At Political Conventions, Policy Waits in the Wings

Thoughts on the Market vor 2 Jahren

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This week’s Democratic National Convention in the US may be light
on policy details, but our Global Head of Fixed Income and
Thematic Research explains that the party’s economic agenda is
fairly clear as the elections draw closer.

----- Transcript -----

Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan
Stanley's Global Head of Fixed Income and Thematic Research.
Along with my colleagues bringing you a variety of perspectives,
today I'll be talking about what investors need to know about
U.S. political party conventions.

It's Wednesday, Aug 21st at 10:30am in New York.

This week, the Democratic Party is meeting in Chicago for its
National Convention. Conventions for major political parties
typically feature speeches from key policymakers, both past and
present. So it would seem to be a forum where someone could learn
what policies the party plans to implement if it takes control of
the government following the November election. But you
should expect more political messaging than policy signal.

That’s because the focus of these conventions tends to be more
about persuading voters – and that means key policy details
typically take a back seat to statements of political values
widely shared by the party in order to send a consistent public
message. In that sense, an observer may not learn much new about
where there’s party consensus on key policy details that markets
care about, including specific new taxes that might be
implemented, which tax breaks might be extended, how these
choices might affect the deficit, and more. That in turn means we
may not learn much about what policies could plausibly be
implemented if Democrats win the White House and Congress in the
November election.

The good news is that we don’t think a convention is required to
have a good sense about this. We’ve previously done the work on
the plausible policy path resulting from a Democratic victory by
examining statements of elected officials and filtering for areas
of consensus among Democratic lawmakers. And we’ve also looked at
expected legislative catalysts in 2025 and 2026, such as the
expiry of key provisions of the Tax Cuts and Jobs Act. In short,
we think the plausible policy path resulting from Democrats
sweeping the election would mean relative stability on trade and
energy policy; and some deficit expansion driven by tax cut
extensions only partially offset by new taxes on corporations and
high income earners.

Net-net, our economists think this outcome would create less
uncertainty for the U.S. growth outlook than a Republican sweep,
where potential for substantial new tariffs would interact with
greater tax cut extensions and deficit expansion. And while we
don’t expect the convention will challenge our thinking here,
we’ll of course be tracking it and report back if it does.

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