Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro . It’s Election Day — Voters are heading to the polls with inflation and the economy top of mind. The lawmakers they choose will face myriad economic policy challenges next year, from higher interest rates to a potential recession to a looming debt ceiling showdown. From your MM host and our Victoria Guida: “The next Congress’s ability to tackle those issues depends on which party controls each chamber, as well as on how significantly the economic outlook deteriorates. And their success or failure will shape an even bigger political contest that will soon heat up — the 2024 presidential race.” Among the key challenges: Recession response — If the economy heads south next year, Congress won’t be able to rely on the usual tools to cushion the blow, such as flooding the economy with stimulus checks or other broad financial aid, which could exacerbate inflation. Instead, lawmakers will likely need to offset any relief spending with tax increases or spending cuts to avoid adding to deficits. “Failing to do so could rattle financial markets wary of policies that could undercut the Fed, or worse, lead the central bank to raise rates even higher. That’s a difficult hurdle even when the president’s party controls both chambers.” Debt deadline — Congress will need to raise the federal borrowing limit at some point in 2023. That process would be much harder if Republicans take one or both chambers, and senior Biden administration officials and allies are exploring potential strategies to raise the ceiling during the lame duck session, our Adam Cancryn reported. A key question: Will Senate Minority Leader Mitch McConnell be willing to negotiate on a bipartisan deal? Rohit Kumar, a former top McConnell aide during the Obama debt ceiling battles and a principal at PricewaterhouseCoopers, says he thinks the answer is yes, adding that the Republican leader’s views on the matter have evolved since 2011. “There’s not actually a lot of leverage here, because at the end of the day everyone knows you can’t actually carry through on your threat,” Kumar said. Any bipartisan agreement to raise the debt ceiling in the lame duck, Kumar said, would need to be part of a broader deal on government spending, which is set to expire Dec. 16. (He dismissed as “pure fan fiction” suggestions that Democrats might advance a debt ceiling increase via reconciliation.) Turning to technocrats — Lawmakers from both parties will continue to keep a close eye on how effective the Federal Reserve is at reining in inflation. If Republicans take control of Congress, they’ll keep up their attacks on the Biden administration, which they say caused this burst of inflation by overspending. But Fed Chair Jerome Powell could begin to get more heat from GOP lawmakers if unemployment rises and they don’t see progress on inflation — a return to the dreaded stagflation of the 1970s. Oversight generally would also ramp up under Republicans, particularly of Securities and Exchange Commission Chair Gary Gensler’s sweeping overhaul of Wall Street rules and of Consumer Financial Protection Bureau Director Rohit Chopra’s crackdown on big tech and finance firms. Also on the agenda — The growth in cryptocurrencies, and the lack of legal clarity around how they should be regulated, has captured the attention of lawmakers on both sides of the aisle, all but guaranteeing that these digital assets will be in focus no matter who is in power. Midterm elections also typically bring administration turnover, and the White House will likely have to find nominees to fill some vacancies. If Republicans take control of the Senate, the type of candidate who can be confirmed will narrow considerably, though the upper chamber could be closely divided regardless of who comes out on top. IT’S TUESDAY — Send us your tips, story ideas or feedback: kdavidson@politico.com and ssutton@politico.com .
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