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Wall Street rooting for gridlock on the Hill

John Dimsdale Nov 8, 2006


SCOTT JAGOW: With Democrats gaining control of at least the House, we could see policy changes in Washington and some fallout on Wall Street. We begin with John Dimsdale in the nation’s capital on went wrong for the Republicans.

JOHN DIMSDALE: Kevin Hassett, the director of economic policy studies at the American Enterprise Institute, says Republicans have been acting like a bunch of big-government liberals.

KEVIN HASSETT: They’ve spent money like crazy, not really reduced anybody’s taxes in a long time and since they did that, the Republicans lost their base. And last night showed us exactly what can happen.

Hassett expects the incoming Democratic majority in the House will try to reverse the President’s tax cuts, restrict trade and raise the minimum wage. If so he says they’ll run up against President Bush’s veto and the result will be two years of gridlock.

That seems fine with Wall Street investors who figure political inaction is better than government meddling with the economy.

In Washington, I’m John Dimsdale for Marketplace.

JAGOW: Indeed, Election Day was a good one for Wall Street. The Dow gained 51 points and the NASDAQ climbed about 10.

Chuck Gabriel’s a senior political analyst at Prudential Equity. I asked him why investors seem to like gridlock on Capitol Hill.

CHUCK GABRIEL: I think that for the most part, investors don’t like change. We have an improving economy, there are positive signs on inflation, so in that kind of environment, gridlock is pretty good. There are some exceptions to that diagnosis but for the most part really investors really are very pleased.

JAGOW: So what are the exceptions?

GABRIEL: I think the exceptions really do include trade. We need the Congress to give the President the ability to continue negotiating trade agreements and I think eventually the markets certainly are concerned about the longevity of the Bush tax cuts, but that’s not a problem that comes until 2010.

JAGOW: Now if the Democrats also gain control of the Senate, how does that change investors’ thinking?

GABRIEL: I think it’ll be interesting to see how the markets react today because the last two days’ trading seem to reflect a sanguine attitude on the part of investors that the Republicans were only like to lose one chamber of the House and not both chambers, the House and Senate. I think the notion of a more viable threat on drug pricing and the cost of developing energy and trade protectionism will really test that thesis about gridlock.

JAGOW: Chuck Gabriel of Prudential Equity.

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