May 6, 2022

Thought of the Week:

It’s no exaggeration to say that the leak of a draft Supreme Court opinion from Justice Samuel Alito, indicating that the Court’s conservative majority is ready to overturn Roe v. Wade and end the constitutional right to abortion, shook Washington and the political world like an earthquake this week. Despite this past weekend’s White House Correspondents Association dinner, ongoing war in Ukraine, a 1000-point plunge in the Dow, and the Capitals playoff chances, in offices, at restaurants, even in elevators, it is what everybody is talking about. On Tuesday alone, I probably received a minimum of 20 inquiries from colleagues, friends, and family asking what this might mean for the November election. The Supreme Court’s final decision, already set for this summer, was always going to move front and center in the run-up to the November midterms, and there’s no doubt that abortion is now a wildcard election element. Democrats, disillusioned by inflation, immigration, crime, and other issues, have found a concern that could energize the party’s base and pull support from suburban voters more than student loan forgiveness ever could. However, I largely agree with the National Journal’s analysis that although abortion rights may be the largest factor compelling Democratic voter turnout, two other factors—inflation and anti-incumbent sentiment—compelling Republican voter turnout may be even stronger. The politics of this single issue favor Democrats, and the polling is fairly clear—Americans, by and large, agree that abortion should be safe, legal and rare. However, those expecting the dismantling of Roe to turn around Democratic midterm prospects will be disappointed. Both parties have already sorted along ideological lines, and Democrats have maxed out their appeal with college-educated women, the constituency most likely to be distressed by growing restrictions on abortion. At the same time, abortion is unlikely to top day-to-day concerns like inflation and crime when voters approach the ballot box. The bottom line: Democrats have dug themselves such a deep hole that it will be difficult for one politically advantageous development to dramatically change things. Meanwhile, businesses could face unprecedented challenges in the face of new state-level laws on abortion. While many companies have experienced pressure from customers, employees, and other stakeholders to take stands on sensitive social issues, including topics that corporate leaders might have ignored in the past, abortion will be just the latest. Firms were forced to react to Black Lives Matter protests, fallout from the Jan. 6th insurrection, and voting rights legislation among others. The upcoming ruling, which will likely curtail abortion rights in at least half the country, may confront companies with such challenges as logistical hurdles in providing equal access to health care, attracting new hires to states with abortion bans, or even ruling out entire parts of the country for new development and investment. Although many executives would like to return to a time when creating shareholder wealth was the yardstick by which they would be judged, as noted in past Thoughts of the Week, the upcoming ruling on Roe v. Wade will only intensify the pressure on companies to engage on cultural, social, and political issues. 

Thought Leadership—from our Associations, Think Tanks, and Consultants:

Eurasia Group Believes Political Landscape Still Looks Favorable for Republicans. There are no changes to the base case for the 2022 midterm elections: Republicans have a 90% chance of taking the House and a 65% chance of taking the Senate. While strong Republican candidates emerged from several Senate primaries, a potential recoil against a surge of abortion restrictions or a rapidly improving economy would decrease the odds of a Republican takeover. Election dynamics are not static and large swings in the generic Congressional ballot, currently favoring the GOP, during election seasons have happened as recently as the 2014 cycle when Republicans took the Senate. With the economy as the top issue, a major decline of inflation, avoiding recession, and continued job growth will be critical to Democrats’ ability to turn the election narrative around. Policy prescriptions targeted at the Democratic base, such as forgiving student loan debt, could help at the margins, but not in numbers large enough alone to prevent a wave, especially as progressive voters remain disappointed in the White House’s failure to deliver on their environmental agenda. The effect of a Supreme Court decision overturning Roe v. Wade is still ambiguous, but it is likely to be marginal, as little evidence exists that abortion is an issue that activates voters who would otherwise sit out in a way that overwhelmingly favors one side or the other. The fading pandemic does help Democrats, as it takes controversial issues that activate Republicans off the field, namely mask and vaccine mandates, even though backlash against the sitting president over issues like Afghanistan, inflation, crime, and immigration still gives the advantage to Republican challengers.

Observatory Group Reviews the May Federal Reserve Meeting. The implications of the latest Fed decision, statement, and press briefing by Chairman Powell are that the central bank sees its near-term baseline outlook to center around 50 basis point (bp) rate hikes in June and July, with a 75 bp hike not being actively considered at this time. After the next two meetings, the outlook will depend on whether inflation ‘flattens out’ in coming months as many Fed Governors expect—in which case the odds of a 75 bp hike would all but vanish. However, if inflation fails to slow, 75 bp hikes will be a genuine option.  Consequently, in contrast to press reports claiming that Chairman Powell ‘dashed’ speculation of a 75 bp hike, in truth, he did not close the door on them, but made the outlook clearly contingent on inflation. He definitely poured cold water over the option for the June and July meetings, saying it was not being ‘actively considered’ at this point. It would take genuinely shocking inflation to get a 75 bp hike back on the table for the next two meetings, but after that, the threshold revolves around whether inflation is seen as having peaked or not. With expectations clearly laid out for the next two meetings, Fed participants, particularly the Chair, will be inclined to telegraph in advance any deviation from this current view. Fed rhetoric in between policy meetings will be a critical element for companies to watch, and it should be noted that Chairman Powell even stressed the need for the Fed to avoid adding uncertainty to this challenging environment.

In Other Words (Quote): 

“We hold that Roe and Casey must be overruled. The Constitution makes no reference to abortion, and no such right is implicitly protected by any constitutional provision, including the one on which the defenders of Roe and Casey now chiefly rely—the Due Process Clause of the Fourteenth Amendment,” Supreme Court Justice Samuel Alito in a draft majority opinion for Mississippi’s pending abortion case.

Great lines from this year’s White House Correspondents Association Dinner:

“I’m not worried about the midterms…We may end up with more partisan gridlock, but I’m confident we can work it out in my remaining six years in the presidency,” President Biden.

“This is the first time a president has attended in six years—it’s understandable—we had a horrible plague followed by two years of Covid. Just imagine if my predecessor came to this dinner this year—now that would really have been a coup,” President Biden.

“Folks, I’m not really here to roast the GOP. That’s not my style. Besides, there’s nothing I can say about the GOP that Kevin McCarthy hasn’t already put on tape,” President Biden.

“Please be careful leaving tonight, we all know this administration doesn’t handle evacuations well,” Daily Show Host Trevor Noah delivering a last parting barb as he left the podium.

Did You Know:

NCIS is the preferred television show among GOP voters, while Law and Order: SVU is Democrats’ favorite program according to a new survey. Among shows with the strongest party lean, Yellowstone was the reddest, while Breaking Bad was the bluest.

GRAPH of the Week:

A bombshell report suggests the U.S. Supreme Court could be about to overturn Roe v. Wade, which protects the constitutional right to abortion. If the Court does reverse Roe as described in a leaked draft opinion, the battle would move to the 50 states, giving each state the right to determine if abortion should be legal inside its borders. According to the two graphs below, 26 states would be “certain or likely” to ban abortion if Roe is overturned, while 16 states have pledged to safeguard the right to the procedure.

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