Democrats need three things – in order of importance -- to hold on to legislative and executive power in next November’s mid-term Congressional elections, and in the presidential contest in November 2024.

One, the economy must stay clear of any major growth slowdown.

Two, Donald Trump should be running again for the White House.

Three, Russia losing, or seen to be losing, the war in Ukraine.

People confidently forecasting that the U.S. economy is facing an inevitable and imminent collapse are wrong. The famous Federal Reserve (Fed)’s put has never been stronger.

The Fed’s policy dynamic profile is a sure-fire bet on a sustained economic activity – and roughly stable equity values -- for the rest of this year.

Stories circulated by the Fed about the accelerating U.S. inflation as a “temporary and reversible” event were just a thinly veiled market manipulation. The purpose was to postpone interest rate hikes so that they would have no depressive impact on economic activity and share prices in the run-up to next November’s elections.

The Fed will keep the economy afloat

As a result, the two key instruments of inflation management will now be (a) the Fed’s small interest rate increases and empty threats of tougher policy actions, and (b) oil and gas releases from America’s huge energy reserves. Those will be attempts to re-anchor inflation expectations, bring down prices of gasoline and fuel oil, and limit energy’s explosive second-round price effects on products and services.

At this point, however, the Fed’s tough talk on inflation has very little credibility, even if it were backed up by further interest rate pinpricks.

With an inflation rate on the way to 8%, and counting, the real interest rates along the entire U.S. yield curve are now in a hugely negative range of -7.5% to -5.53%.

To bring the U.S. monetary policy to a roughly neutral stance – i.e., neither loose nor tight – the key short-term interest rate (aka the federal funds rate, the cost of overnight money banks lend to each other in interbank market) would have to become a positive real (inflation adjusted) interest rate of 2%.

That is an incredibly long way to go – at any pace -- from a negative 7.5% we have now. So, in this new interest rate cycle, the economy and equity markets will be largely unaffected by next November’s elections.

It follows, then, that with the economy still in good shape, and the mainstream media entirely on their side, the Democrats will most probably retain, and quite possibly expand, their control of the U.S. Congress. That would give them the latitude they need to dictate the legislative and political agenda during the election campaign to November 2024.

And to consolidate their advantage, the Democrats would need Donald Trump to officially announce his run for presidency.

A deep recession will begin in 2025

Joe Biden said last Thursday he would welcome that event as “a fortunate opportunity,” presumably to beat Trump one more time.

That sounds like an extraordinary chutzpah for a man who is suspected of being unable to complete the next two-and-a-half years of his present mandate.

But leaving that to the side, a poll by Marquette University Law School last January showed Biden winning by 53% to 43% in a possible 2024 rematch, reflecting an enduring and widespread media hostility to Trump’s revenge re-run for the White House.

The Trump candidacy, therefore, may well increase Biden’s chances of winning in 2024 -- even in case of difficulties with the economy and employment.

The icing on the cake, in Democrats’ view, would be the failure of Russia’s “special military operation” in Ukraine. That objective clearly transpires in Biden’s public statements, laced with incendiary ad hominem attacks on Russian president.

Democrats, it seems, will do everything they can to arm Ukraine and help its resistance with political support, military advice and intelligence guidance. All that can go very far because the stakes in this fight are extremely high.

Put briefly, Ukraine is now an essential part of a U.S.-led “strategic and systemic competition” with Russia and China. That innocuous sounding “competition” is a deadly confrontation, rebranded by the Biden administration as an existential and open-ended struggle of liberal democracies for the preservation of the post-WWII world order.

Russia could put an end to this confrontational episode by a swift Ukraine takeover, following general Colin Powell’s Pottery Barn rule: “You break it, you own it.” That’s the advice the general gave to George W. Bush before the second Iraq war.

It’s unlikely that Russia would settle for anything less.

That would be a setback for Democrats’ election campaign, but, with Trump on the other side, and the economy kept afloat by Fed’s liquidity provisions, it’s unlikely that this would be a serious obstacle on the incumbents’ way to another term in office.

The economic fallout from all this will be quite typical for an election year: High inflation will be tolerated, and the beginning of a serious recession cycle will be postponed until 2025.