Although the US midterm results aren’t finalized, it appears that gridlock is returning to Washington, D.C. With Republicans poised to take control of the House and potentially the Senate (contingent upon the runoff in Georgia), the prospect for additional fiscal stimulus over the next two years has been greatly diminished. But we still could see another US debt ceiling showdown culminating in a downgrade of the US credit rating a la 2011.

Overall, the US midterm elections had a modest impact on financial markets on Tuesday and Wednesday – the US Dollar rallied, gold prices slumped, and US stocks dropped back. The impact on the Federal Reserve’s plans may play out over the course of 2023, as a drop off in US fiscal stimulus weighs on the US growth trajectory, helping slow inflation.

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