At Political Conventions, Policy Waits in the Wings

Thoughts on the Market

This week’s Democratic National Convention in the US may be light on policy details, but our Global Head of Fixed Income and Thematic Research explains that the party’s economic agenda is fairly clear as the elections draw closer.

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Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about what investors need to know about U.S. political party conventions.

It's Wednesday, Aug 21st at 10:30am in New York.

This week, the Democratic Party is meeting in Chicago for its National Convention. Conventions for major political parties typically feature speeches from key policymakers, both past and present. So it would seem to be a forum where someone could learn what policies the party plans to implement if it takes control of the government following the November election. But you should expect more political messaging than policy signal.

That’s because the focus of these conventions tends to be more about persuading voters – and that means key policy details typically take a back seat to statements of political values widely shared by the party in order to send a consistent public message. In that sense, an observer may not learn much new about where there’s party consensus on key policy details that markets care about, including specific new taxes that might be implemented, which tax breaks might be extended, how these choices might affect the deficit, and more. That in turn means we may not learn much about what policies could plausibly be implemented if Democrats win the White House and Congress in the November election.

The good news is that we don’t think a convention is required to have a good sense about this. We’ve previously done the work on the plausible policy path resulting from a Democratic victory by examining statements of elected officials and filtering for areas of consensus among Democratic lawmakers. And we’ve also looked at expected legislative catalysts in 2025 and 2026, such as the expiry of key provisions of the Tax Cuts and Jobs Act. In short, we think the plausible policy path resulting from Democrats sweeping the election would mean relative stability on trade and energy policy; and some deficit expansion driven by tax cut extensions only partially offset by new taxes on corporations and high income earners.

Net-net, our economists think this outcome would create less uncertainty for the U.S. growth outlook than a Republican sweep, where potential for substantial new tariffs would interact with greater tax cut extensions and deficit expansion. And while we don’t expect the convention will challenge our thinking here, we’ll of course be tracking it and report back if it does.

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