How Midterms Could Impact Your Wallet

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What's Happening Today

Today is Election Day, and you might be wondering how midterm or presidential elections impact the economy, markets, and your wallets. If you've checked your portfolio lately, you might have noticed that stocks are on the rise today ahead of election results.

Thanks to primaries and political forecasts, investors are already considering projections suggesting that Republicans could take control of both chambers of Congress. This means that the White House and Congress would be divided, which markets like. Why is that?

You might think that political division isn't a good thing, but a divided Congress and White House could make it more difficult to pass major laws that could change taxes, government spending, and more. And that could make it easier for companies to carry on with business as usual without worrying about big economic policy changes that could impact their top and bottom lines.

You might see markets respond positively in the short term to the election results, but historically, it typically doesn't last. Instead, everyone will likely be paying greater attention to this week's inflation figures, which will determine how much more aggressive the Federal Reserve will get in an attempt to bring inflation in line with its 2% goal.

This doesn't mean, of course, that elections don't matter. This next Congress will help steer the United States through a potential recession, and proposals to tax Big Oil, create a budget that could see spending cuts, and debt ceiling debates (remember that debacle last year?). So, even if markets look past this election, it's still important to vote.

Here's one thing elections won't impact: the direction of the Federal Reserve. Policymakers at the central bank hold non-political positions. So the Fed will continue to follow its mandate, no matter who is in office.

- Kristin

Editors' Picks

Both Parties Cite the Economy as a Reason To Vote for Them (Bloomberg)

The U.S. Congress and Its Powerful Impact on the Economy (The Balance)

Gambling, Marijuana and Taxing the Rich Will Be on Midterm Ballots (The Wall Street Journal)

The Best and Worst States for Business Taxes (The Balance)

Banks' Bet on Subprime Consumers Sends Credit-Card Balances to a Record (Bloomberg)

The Dangers of Credit Card Debt and How To Avoid Them (The Balance)

How To Prepare Financially for Retirement (The Balance)

Term of the Day

Thrift Savings Plan (TSP)

A TSP is a tax-deferred retirement savings plan available to federal employees that is similar to 401(k) plans many employers offer.

Federal employees who participate in a TSP can save part of their income for retirement. Like a 401(k), your employer takes out a tax-advantaged percentage of your choosing from your paycheck and may match your contribution.

If you're covered by the Federal Employees Retirement System (FERS), you can save in a TSP while also taking advantage of a FERS retirement annuity and Social Security benefits. If you're covered by the Civil Service Retirement System (CSRS) or are a member of the military, the TSP is a supplement to a CSRS annuity or military retired pay.

Off the Charts

In a survey of The Balance readers earlier this year, respondents blamed the president, the pandemic, corporations, and Congress most for higher inflation.