Monetary Policy & Inflation | Politics & Geopolitics | US
Could Bernie Sanders Upset Markets?
- By Bilal Hafeez and Stefan Posea
- 2 min read
The US presidential election season will start properly next Monday when the first nominating vote for the Democrat candidate will take place. While most polls and prediction markets are expecting Joe Biden to be the eventual candidate – a lot can happen especially in the early caucuses and primaries that could dislodge his leading position. Remember how in the 2008 primaries, Hilary Clinton was the favourite until Obama’s surprise win in Iowa vote.
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The US presidential election season will start properly next Monday when the first nominating vote for the Democrat candidate will take place. While most polls and prediction markets are expecting Joe Biden to be the eventual candidate – a lot can happen especially in the early caucuses and primaries that could dislodge his leading position. Remember how in the 2008 primaries, Hilary Clinton was the favourite until Obama’s surprise win in Iowa vote.
And polling ahead of the Iowa vote has shown the uncertainty around these votes. Last year, Pete Buttigieg was an early favourite, but his star has since faded. Instead, Bernie Sanders has staged an impressive rise in polls. Now prediction markets have him as the favourite to win the Iowa vote (Chart 1). Jo Biden is second favourite, with Buttigieg and Warren far behind
An early win will see renewed focus on Sanders policies. Some of his notable ones featured in his campaign include:
• Wealth tax for top 0.1% of US households
• Aims to cut wealth of billionaires in half over 15 years
• Increase corporate tax rates for companies with CEOs who earn much more than their median workers.
• Expand Medicare to all
• Eliminate the $81bn in past-due medical debt
• Transform energy system to 100% renewables
• Cancel all student debt for 45 million Americans estimated at $1.6 trillion.
• Invest $1 trillion in infrastructure.
On the Fed, he has been critical on the Fed tightening policy in recent years: “Raising rates should be done as a last resort, not to fight phantom inflation.” He is the only candidate to have criticised the Fed openly. On trade, he has been a critic of NAFTA and the new USMCA deal on the grounds that they lead to US job losses. He has also been critical on trade deals with China on similar grounds.
Current polling suggests he could win upcoming votes in New Hampshire (11 Feb) and Nevada (22 Feb). However, Biden is expected to win Super Tuesday on 3 March. Needless to say, markets are unlikely to react positively to early wins by Sanders in the primaries.
A larger question is whether he could implement any of these policies – certainly Congressional Democrats are unlikely to be as supportive. But a bigger problem for him would be that Democrats are not expected to win the Senate in the November election (Chart 2). So whoever wins the Presidential election will likely have a split Congress, which significantly reduces the changes of major domestic policy changes.
Chart 1: Sanders Surges in Expectations to Win Iowa
Source: Macro Hive, PredictIt
Chart 2: Split Congress Expected to Remain
Source: Macro Hive, PredictIt
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.
Stefan Posea is a Research Analyst at Macro Hive. His research interests lie in macro-financial interactions and monetary policy analysis. Stefan graduated with an MSc in Economics at Birkbeck, University of London and previously held roles in M&A and the Public Sector.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)