US Midterms Q&A – Implications for Trump’s final two years and beyond
Exploring the economic and policy implications of the 2026 election results and the outlook ahead.
Democrats swept both chambers of Congress with larger-than-anticipated margins. In addition to surpassing the 218 seats needed to win control of the House, Democrats will have at least a 54-seat majority in the Senate, flipping seven Republican-held seats so far.
We’re not changing our baseline forecasts, though the risks to them in both directions loom larger. A potential government shutdown in mid-December and/or a rapid reconciliation bill focused on defense during the lame-duck session are near-term risks to watch.
The result adds upside risk of a deficit-financed grand bargain that boosts defense and welfare spending, though we think that’s more of an issue for 2028 than 2027. That scenario would add 0.3ppts to growth in 2028. Our baseline assumes both parties agree to extend a range of personal tax cuts, but intractable gridlock is a downside risk that could cut growth by 0.2ppts in 2029 and 0.1ppt in 2030.
The downside risk is that the administration goes harder on tariff, foreign, and immigration policies. With the midterms over, escalation with Iran appears more likely. The 50% auto tariff on Canada and the expiring US-China truce are flashpoints to watch in January. Net immigration is still slowing amid a ramp-up of funding for immigration and customs enforcement.
Federal regulation is unlikely to derail the AI infrastructure buildout over the next two years. The bigger risk lies with states and localities – especially tighter data center rules across the South and Midwest.
Midterms can be a misleading guide to the next presidential election. Based on our baseline forecast for 2028, strong economic data will be more supportive of the Republican presidential nominee than it is today.
