The polls said true: the Republican Party (GOP) retained a majority in the House of Representatives and won the majority with 51 seats against 49 in the Senate. This victory is commented as a bitter show of dissent for Democratic President Barack Obama.
Financial markets should favorably welcome such news even if they already widely anticipated it. The most conservative fringe of the Republican party, the Tea Party, should particularly seek to bury the reform of social security – Obamacare – over the next two years as the GOP seeks a nominee capable of uniting beyond traditional divisions of the American political scene with a view to winning the presidency in 2016.
Despite the good official figures of economic growth and unemployment, these mid-term elections confirmed the growing doubt of the Americans as if they believed these figures do not reflect reality as it is, otherwise the Democrats would have been victorious. From a financial viewpoint, it is therefore the Federal Reserve Bank of the United States, the Fed, whose role as the markets’ ultimate arbiter has now been strengthened further, with the risk that such dependence will amplify the potential long-term adverse effects of this unprecedented interventionism.
By losing control of the legislative agenda, the Obama administration also lost its ability to act decisively as the global geopolitical context is deteriorating. Inaction will likely aggravate tensions, mainly in Ukraine, the Middle East, and Asia where China’s rise in power is provoking growing nationalist reactions.