Contributed by Brian Gardner
Divided government returns to Washington in 2023 as Republicans will have the majority in the House, while Democrats will retain the majority in the Senate. A split Congress typically complicates governing, and the situation in 2023 will be exceptionally complicated given the narrow majorities in both the House and the Senate. Legislation will likely be limited to a handful of “must-do” bills, and even then it will be difficult to reach compromises to pass critical bills. Regulatory action is likely where most policy changes will be enacted.
2023 is likely to begin with drama and possibly chaos in the House. Republicans will hold a 222–212 majority (with one vacancy), and the GOP has nominated Representative Kevin McCarthy (R-California) to be Speaker of the House. The entire House votes on the Speaker, and a simple majority is required to be elected. If all 434 members vote for a specific candidate, then McCarthy must get at least 218 votes. As of this writing, a group of conservative Republicans has threatened to block McCarthy. There are various strategies for McCarthy to be elected Speaker, but none are easy given the opposition. McCarthy remains the favorite to be elected since his opponents lack a viable alternative. If the House rejects McCarthy, then Republicans would have to pursue Plan B, but there is no backup plan yet, and it could take several days for the House to elect a Speaker. The political chaos could negatively impact markets and be a sign of political strife for the year to come.
2023 is likely to begin with drama and possibly chaos in the House. Republicans will hold a 222–212 majority (with one vacancy), and the GOP has nominated Representative Kevin McCarthy (R-California) to be Speaker of the House. The entire House votes on the Speaker, and a simple majority is required to be elected. If all 434 members vote for a specific candidate, then McCarthy must get at least 218 votes. As of this writing, a group of conservative Republicans has threatened to block McCarthy. There are various strategies for McCarthy to be elected Speaker, but none are easy given the opposition. McCarthy remains the favorite to be elected since his opponents lack a viable alternative. If the House rejects McCarthy, then Republicans would have to pursue Plan B, but there is no backup plan yet, and it could take several days for the House to elect a Speaker. The political chaos could negatively impact markets and be a sign of political strife for the year to come.
Congressional Republicans, especially in the House, have recently expressed frustration with the annual appropriations process. While Republicans might try to pass appropriations bills via regular order instead of an omnibus appropriations bill as happened recently, Congress could struggle to meet this goal, which could result in a government shutdown in the fall of 2023. |
With Republicans taking over the House, it is likely that Congress will look at social media companies and their protection under Section 230 of the Communications Decency Act. Both parties are interested in policy changes related to the technology sector. Republicans will look at allegations of the suppression of speech. Democrats will focus on platforms being used to spread disinformation. Both parties have varying degrees of interest in changes to antitrust laws as they apply to the technology sector. Although Congress was unable to pass tech-related antitrust legislation in 2022, it is expected to give this issue a second look in 2023.
Another issue that could receive bipartisan attention in 2023 is cryptocurrency regulation. A pair of bipartisan bills have been introduced in the Senate that would clarify how different types of digital assets are regulated. These bills are likely to be reintroduced in 2023. If Congress is unable to pass sweeping digital asset legislation next year, it might opt to pass narrower legislation that addresses the regulation of stablecoins but not other digital assets.
Given the potential for gridlock in Congress, the regulatory agenda will be key to policy changes in 2023.
The Department of Justice could make significant changes to its merger guidelines in its forthcoming proposal to amend its horizontal and vertical merger guidelines. A release is expected in early 2023. Similarly, banking regulators could propose changes to bank merger review guidelines. Such changes could impose new rules on market concentration, access to bank services, community lending rules, and the possible impact of mergers on banks’ financial stability. Banks with more than $100 billion in assets will likely bear the brunt of any changes to bank merger rules. Related, banking regulators could propose higher bank capital rules, which would also impact the largest banks the most.
Early in 2023, the Biden administration is likely to conclude its review of Trump era tariffs on Chinese imports. The base-case expectation is that the administration will maintain most tariffs and eliminate or relax only a small portion of the existing tariffs.
Despite just finishing the midterm elections, attention is already turning to the 2024 elections. It appears likely that President Joe Biden will run for reelection, and if he does then it is unlikely that any credible Democrat will oppose him. If Mr. Biden decides not to run, he might still wait to make an announcement lest he become a lame duck president. In this scenario, numerous Democrats would probably seek the nomination, including Vice President Kamala Harris, several U.S. senators, and a group of Democratic governors.
On the Republican side, former President Donald Trump has already announced his intent to run and is likely to be challenged by any number of governors, including Florida Governor Ron DeSantis, several Republican senators, and possibly former members of President Trump’s administration. Campaigns will be active in organizing and fundraising throughout early 2023, especially for Republicans. Organizing among Democrats will depend on President Biden’s decision.
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