This is not what is going to happen.
The government is likely to be locked up pretty hard if the Republicans take either the House or the Senate in the fall, and while we might not see hard austerity, we certainly won't see any stimulus.
Meanwhile, the Fed has been talking consistently very tough on inflation and is bumping 0.50 basis points every meeting and signalling that they'll do that until inflation is contained. They're talking positively about Paul Volker and keeping rates significantly above what is considered to be neutral.
And what they're worried about is the broad wage increases that are being seen (and the whole backlash against shitty jobs and pay and unionization drives).
They absolutely will raise rates this time pretty fast -- much faster than the 0.25 basis point tightening and calming reassurances every meeting under Greenspan. They're talking tougher than I've seen them ever talk in the 21st Century.
If you believe the economy is a huge bubble, they're talking like they're going to pop it. And they always overshoot and they're talking and looking like they're going to overshoot. That means that meaningfully large areas of the economy are likely to detonate (probably CMBS). Crypto will also probably melt down.
And with a Republican congress and a Democratic President the thing to worry about is that if the system needs rescuing that a chunk of the Republicans may be happy to watch it burn and blame it on Biden. Of course that will hurt them, too, but they may realize too late that the Leopards will also eat their face as well.
They're going to proceed with waging class war and crash the economy into an iceberg to get wages back under control. And everyone who is screaming at them about inflation is going to cheer them on to do it. Then when the economy hits the wall the people who would put out the fire are going to be paralyzed into inaction.
This time it is actually different because the Boomers are retiring, COVID and long COVID has taken people out of the workforce, the pandemic itself has made people very uppity and demanding and there's a huge overhang of jobs compared to job-seekers and we're seeing wage inflation. That's novel compared to the past 30+ years. And they're pretty much freaking out over it. And there's no political pushback, they have a blank check right now politically to get inflation under control. When I try to suggest that a wage-price inflation cycle would be useful to reprice debt and assets like housing people and that "stagflation" is the less-painful path to repricing people act like I should be locked up in the loony bin. QED, the Fed currently has a single political mandate to get inflation under control. We're gonna see deflation. Yield curve is going to be pushed into inverting until something breaks.