The 2020 election season is not technically over. Due to neither candidate winning a majority, both races are going to a runoff. One race is between Senator David Perdue and Jon Ossoff, while the other is between Senator Kelly Loeffler and Pastor Raphael Warnock.
Due to their stronger than expected performance on election night, Republicans currently hold a slight 50-48 advantage in the Senate. However, Democrats still have some hope of winning control of the Senate if they can win both runoffs on January 5. The Senate would be 50-50, but they would have control due to Vice President-elect Kamala Harris casting the deciding vote.
Despite Democrats winning Georgia in a squeaker, the current consensus is that Republicans will hold onto both seats, although both races are projected to be very tight. Republican turnout tends to be higher in special elections and Congressional races. Further, the election showed that polls are still not doing a good job of modelling turnout. Additionally, the final tally in Georgia showed that Ossoff and Warnock underperformed President-elect Joe Biden, indicating many voters split the ticket.
Some Changes
Given the tightness of the race, recent developments could be the deciding factor. One issue is that President Donald Trump continues to contest the election and has attacked Georgia Republicans like Governor Kemp for not doing enough. Some believe this could depress turnout among Republicans.
Another factor is the $2,000 stimulus checks. Both Ossoff and Warnock have campaigned on this. President Trump-supporting the checks meant that Perdue and Loeffler were also forced to throw their support behind it. Currently, Senator McConnell has held up any vote on this. Failure to pass this could also move votes at the margins, while its passage should benefit them.
Why It Matters
These two races have major implications for the economy and stock market. If Republicans retain the Senate, they will be able to have de facto control over the Biden administration by simply not bringing to the floor votes on various matters. For example, the House could support an infrastructure plan but McConnell could never vote on it. There's an even bleak possibility that there would be no hearings on any of Biden's Cabinet appointees in the same way that he refused a vote on Merrick Garland.
This would probably lead to a similar economy that we had during the latter years of the Obama administration in which growth was positive but not enough to generate significant inflation. The growth led to steady gains in employment and increases in corporate profits but it wasn't enough to lift wages or really move the needle. However, this outcome is ideal for the stock market as it ensures that monetary policy remains dovish.
However, if Democrats take the Senate, then it's likely that there will be the second year of significant fiscal stimulus with another coronavirus relief package and infrastructure package. This could lead to more growth, increases in wages, but also inflationary pressures which would eventually result in tighter monetary policy.
