What The Republican Sweep Means For The Economy

The Republican sweep of the 2024 election sets the economy on course for potentially faster economic growth, higher inflation, and higher interest rates in the years to come, according to several economic forecasts.

Republicans secured control of both chambers of the legislature Wednesday when the Associated Press called the re-election of House Representative Juan Ciscomani of Arizona, giving his party the 218 seats needed to maintain a majority in the chamber. With former president Donald Trump regaining the presidency and Republicans taking control of the Senate, it’s more like that Trump’s economic campaign promises will be realized.

Economists say some of those proposals could fuel economic growth but could also lead to higher prices, which would prompt the Federal Reserve to raise borrowing costs to keep inflation from running out of control.

“We believe the U.S. economy could see a short-term boost from the far more accommodative fiscal policy, but the adverse impacts from higher tariffs, potential trade retaliation, and potentially higher inflation and interest rates could largely offset the short-term gains,” Douglas Porter, chief economist at BMO Capital Markets, together with other economists at the bank, wrote in a commentary. “The Federal Reserve itself may have to respond to the loosening of fiscal policy by keeping interest rates higher than previously planned or even raising the fed funds rate again to cool what could be another overheating economy.”

What Could the Impacts Of a Republican-Run Government Be?

Economists have widely predicted that Trump’s economic agenda could push economic growth upward. However, it would also carry risks, especially if he enacts heavy tariffs, as he pledged to do on the campaign trail.

Merchants would likely pass those costs on to consumers, pushing up prices for a wide range of products. Similarly, Trump’s proposed campaign of mass deportation could remove workers from vital industries like homebuilding, further raising prices.

Democrats still hold on to at least one lever of power: the Republicans’ 53-47 majority in the Senate leaves the minority party able to block legislation with the filibuster rule. That means major laws would have to gain the cooperation of some Democrats or go through a process called budget reconciliation, which is only allowed once per year.

Still, the Republican victory in the House gives Trump’s party greater leeway to shape U.S. economic policy. Forecasters adjusted their expectations accordingly, with economists at Pantheon calling for the Federal Reserve to cut interest rates at a slower pace than they previously anticipated.

Forecasters at Goldman Sachs assumed Trump’s second presidency would bring with it “higher China and auto tariffs, much lower immigration, some fresh tax cuts, and regulatory easing,” leading to higher growth. However, Goldman analysts said the biggest risk was much higher tariffs, which would “hit economic growth hard.”