The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.
The 115th Congress ended with a whimper, as lawmakers found themselves unable to bridge a partisan divide and put an end to a partial government shutdown.
Instead, that task will be left to the 116th Congress, which convenes in Washington on Thursday.
The new Congress will have a distinctly new look. More than 100 newly elected lawmakers will be making their Washington debuts this week. For the first time in history, the House of Representatives will have more than 100 women members.
Democrats will return to the majority in the House for the first time since 2011. They will begin the year with a margin of 235-199 in the House, pending the resolution of a disputed race in North Carolina that could be headed to a revote.
In the Senate, however, Republicans hold a 53-47 majority. The partisan split between the two chambers of Congress will make it a challenge to find common ground and approve legislation.
Here’s a look at what to watch for as the new Congress gets underway.
Ending the government shutdown
The first agenda item for 2019 is not one any lawmaker wanted to deal with on day one: resolving the partial government shutdown. About 75% of the federal government—including the departments of Defense, Education, Labor, Health and Human Services, and Veterans Affairs—has been funded for the year and continues to function. The remaining 25% has stopped operating, meaning hundreds of thousands of federal employees remain furloughed and key services have been curtailed.
Look for House Democrats to immediately pass legislation to end the partial shutdown. Whether it goes any further is in question. Such legislation would still need to be approved by the Republican-led Senate and signed by President Donald Trump. The president has insisted that Congress fund a wall along the southern border. Democrats are firmly opposed. That leaves little room for a resolution.
Democrats have made no secret of their intention to use the subpoena power that comes with chairing House committees to open investigations into the Trump administration. Expect lots of hearings, requests for documents and calls for administration officials to testify on a wide variety of issues.
Some members of the House have talked openly of launching impeachment proceedings against President Trump. While the math may favor Democrats in the House, a trial in the Senate would require a two-thirds majority, 67 votes, to convict. Given the Republican majority in the Senate, conviction seems unlikely.
Expect impeachment talk to remain in the background for the time being. Instead, Democrats will look to use their investigative powers to pressure the administration and try to score political points that are certain to be part of the 2020 presidential campaign.
The 2020 presidential campaign will kick off in the first quarter of 2019. The list of potential candidates for the Democratic nomination tops 30 at the moment. More than a dozen members of Congress are exploring presidential bids, including at least eight sitting Senators. Don’t be surprised if presidential posturing gets in the way of legislating as 2019 unfolds.
Possible areas of bipartisan compromise
Democrats and Republicans broadly agree on the need to pass an infrastructure spending package. Both sides would also like to address skyrocketing prescription drug prices. But negotiating the details won’t be easy.
On infrastructure, both parties want to see much-needed spending on roads, bridges, airports and other projects around the country. Finding a way to pay for a $1 trillion to $2 trillion spending binge will be the tricky part, especially in an era of growing budget deficits.
As for drug prices, a bill to crack down on the tactics pharmaceutical companies use to delay the entry of cheaper generic products to the market attracted bipartisan support in 2018, as did another bill for drug ads to include more information about pricing. Those bills could provide some starting points in the new year.
Another area with real potential for bipartisanship is retirement savings. New House Ways & Means Chairman Richard Neal (D-MA) joked late last year that the top three priorities of his chairmanship would be “retirement, retirement and retirement.”
Neal has championed legislation that would require employers with more than 10 workers to offer a retirement savings plan to their workers. That requirement has drawn some opposition, but expect Neal to push the proposal in early 2019.
Other initiatives have more bipartisan support, including an administration-supported effort to expand “open multiple-employer plans” that would allow unrelated small businesses to band together to offer a retirement savings plan to their employees.
Other ideas include:
- Eliminating required minimum distributions for individuals with less than $50,000 in total retirement savings.
- Allowing taxable distributions from retirement accounts to pay for childbirth and adoption expenses.
- Repealing the age limit of 70½ for making contributions to traditional IRAs
- Providing lifetime income disclosure to help individuals understand how their current level of savings translates into a monthly income during their retirement years
Two major trade issues also loom. A Congressional vote to approve the new United States–Mexico-Canada Agreement (USMCA) will be on the docket, likely late in the first quarter or early in the second quarter. The trade agreement has skeptics on both sides of the aisle, and the outcome of the approval vote is far from certain.
Perhaps even more critical are the ongoing negotiations with China. The administration’s 90-day “trade truce,” in which planned tariff hikes have been suspended while the two countries talk, expires on March 1. An extension is possible if talks are going well. For now, Congress is taking a wait-and-see approach.
Looming debt ceiling fight
Perhaps no issue before Congress in early 2019 has the potential to be as big a market mover as the coming fight over the debt ceiling. Legislation passed early last year suspended the debt ceiling for all of 2018, but it comes back on March 1. At that point, the nation will be at the statutory limit of the amount of debt it can accumulate. Only Congress can increase that limit.
The Treasury Department, as it has done in past debt ceiling crises, will undoubtedly use its “extraordinary measures” to prevent the United States from defaulting, but those steps are temporary. At some point in the late spring or early summer, Congress will have to vote to increase the debt ceiling.
Uncertainty over when and whether Congress will act has produced market volatility in the past. A 2011 dispute over the debt ceiling pushed the country to the very edge of default. Markets saw a double-digit decline as the default date approached. The market drop helped bring Congress together to craft a last-minute deal.
There’s no simple resolution in the offing for the debt-ceiling scenario. Investors would be wise to keep an eye on this issue in the months ahead.
A number of issues pending before Congress in 2019 could contribute to market volatility. But with the potential exception of the debt ceiling fight, none are likely to be market drivers in and of themselves.
What You Can Do Next
- If you’ve built a solid financial plan and a well-diversified portfolio, it’s best to ignore the political noise and focus on your long-term goals. Want to talk about your portfolio? Call our investment professionals at 800-355-2162.
- Watch Schwab experts discuss other market and economic topics in the Stock Market Report.