Anika Begay
Piper Sandler analysts believe that the recent weak economic data and market reactions are unlikely to have a significant impact on the upcoming election unless the economic situation worsens significantly.
In a note to clients on Wednesday, the firm argued that “any kind of policy response ahead of the election would require a climate of crisis.”
The note stresses that while a recession, particularly a downturn, could profoundly shape the debate over fiscal policy next year, current economic conditions do not yet justify immediate bipartisan action.
Piper Sandler says: “Even though there is broad consensus that the economy is likely headed for recession, it is hard to imagine Congress passing a bipartisan policy response before the election.”
They point out that both Donald Trump and congressional Republicans are unlikely to support pre-election checks, and that it will take more than a simple 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 of the available measures he can implement without congressional support.
They predict that “if the economy were to enter a recession in the next six months, this could have a significant impact on next year’s agenda.”
A key factor in next year’s fiscal package is the scheduled expiration of Trump’s tax cuts. However, Piper Sandler says a recession could introduce new variables that affect the fiscal policy landscape.
The firm’s note recalls the extension of the Bush tax cuts during President Obama’s term in response to the Great Financial Crisis, suggesting that a recession might similarly increase the likelihood of a more stimulative economic policy response.
Piper Sandler concludes that while Trump has proposed several new tax cuts, they would be more likely to be enacted if the economy enters a recession.
