The midterm elections may give the US economy a short-term boost, but bigger challenges remain

There usually is a return of confidence to equity markets after the midterms, if only because the elections frequently result in gridlock. Markets like it when politicians cannot do very much

A president at loggerheads with the Fed is not good. Puffing up the economy at the top of the cycle is not good (AFP/Getty)

The outcome of the US midterm elections is good news for the US and world economies for at least half a dozen reasons. Let’s go through them, and then think about the rest of the year and beyond.

One, the Republicans losing control of the House means that it will be impossible, or at least very difficult, for the president to get controversial legislation through Congress.

That scuppers another round of tax cuts. This is welcome because it is never a great idea to have a looser fiscal policy when the economy is near the top of an economic cycle. The present round of cuts has boosted the fiscal deficit to around 4 per cent of GDP and a further set would have been really worrying.