The lack of an immediate conclusion to the US election race may increase financial market volatility. However, US institutions will eventually resolve the delays in vote counting and subsequent disputes over the results in a way consistent with the established frameworks around the rule of law without causing any meaningful, enduring credit impact, stated a report issued by Moody’s on Thursday.
“Credit implications will only arise if the ultimate course of events causes us to revise this assumption,” continued the report.
Moody’s said that preliminary results show that neither Republican President Donald Trump nor former vice president Joe Biden had yet secured the minimum 270 electoral votes to be declared the winner, while election results in key battleground states, including Michigan, Wisconsin and Pennsylvania are still outstanding.
Preliminary results also show that the Democrats are on track to retain their majority in the US House of Representatives. Meanwhile, control of the US Senate, where Republicans hold a majority, remains uncertain as the results in several states are not available yet, according to the report.
“Although we continue to view overall political risk to the US sovereign credit profile as relatively low when compared globally, the contentious election process has highlighted the growing political polarisation among the US electorate. This polarisation could exacerbate political and ideological divides between Democratic and Republican lawmakers, and further constrain the policymaking process and increase risks of political brinkmanship around credit-relevant economic and fiscal policies. Increased polarisation among the electorate will also likely exacerbate societal tensions and contribute to a rise in social unrest," Moody’s estimated.
For the next administration, the report noted that the key policy challenges are expected to include the still-weak economy and fragile recovery, the COVID-19 and healthcare access, increasingly tense relations with China, record-high deficits and rising government debt, and environmental challenges.
That said, the policies adopted to deal with these challenges will have credit implications for a range of US and global sectors, including consumer-facing sectors, construction, health insurers, hospitals, pharmaceutical makers, the oil and gas industry, utilities, automakers, and state and local governments, according to the report.