A divided government – the expected outcome based on current polls – would likely extend this period of political uncertainty.
The American electorate will head to the polls on 3 November 2026. While President Trump is not on the ballot, the elections are significant as they will determine control of Congress, which is currently held by the Republican Party. A divided government – the expected outcome based on current polls – would likely extend this period of political uncertainty.
What is needed to “win”
In the Senate, each US state appoints two senators. US senators serve six-year terms, meaning that roughly a third of the 100 Senate seats are up for grabs at every federal or midterm election. Currently the Republicans control the Senate, and of the 35 seats up for election this year (including special elections in Florida and Ohio), 22 are held by Republicans. To win control of the Senate, the Democrats would need a net gain of four seats.
In the House of Representatives, members represent individual districts within a state and serve two-year terms. Each of the 435 House seats is up for election in November. Currently the Republicans control the House. The Democrats have 212 seats and there are five vacancies, three of which were held by Democrats. If the Democrats keep those three seats for a total of 215, they only need an additional three to win a majority in the House.
Divided government looks to be the most likely outcome
A post-2024 redistricting exercise should have played in favour of the Republicans at this year’s midterms. However, current polling suggests that the Republicans face an uphill battle to retain control of the House. The President’s approval ratings have deteriorated sharply (see Exhibit 19) with the Middle East conflict having pushed gasoline prices up to USD 4.50 per gallon.
While the elections are still some way off, cost of living pressures on US households are unlikely to ease quickly. Even once the conflict is resolved, headline and core inflation are likely to remain elevated for some time. At the same time, the administration may struggle to push through fiscal “sweeteners” to bolster support, given emerging fractures within the Republican Party. History shows that the president’s party almost always loses ground in the House, as has been the case in 20 of the past 23 midterm elections. With only a narrow majority to begin with and low approval ratings, Republicans face a challenge to maintain control (see Exhibit 20).
The battle for the Senate is a much closer race. Of the 35 seats up for election, the majority are considered safe for either party, meaning the outcome will hinge on a handful of competitive races. To take control of the Senate, the Democrats will need to hold onto their current seats in Georgia, Michigan, Minnesota and New Hampshire. They must also win four additional seats from those currently held by Republicans. These include North Carolina and Maine – where the Democrats are leading in the polls – as well as two seats from Ohio, Alaska, Texas, Florida, Nebraska and Iowa. The Senate is in play for the Democrats but it will be a challenge.
What this means for policy
Scenario one: Republicans lose the House but retain the Senate
If the Republicans lose the House, advancing their domestic policy agenda becomes materially more difficult, regardless of the Senate outcome. Fiscal policy is especially challenging: all revenue and spending bills must originate in the House. With the deficit already elevated (see Exhibit 21), a Democrat-controlled chamber would likely block any Republican attempt to deliver unfunded stimulus without concessions. There is also greater risk of political brinkmanship around the next debt limit deadline, leading to tougher budget standoffs and potential shutdown threats, though this likely won’t occur until summer 2027 at the earliest.
With domestic policy options limited, the President may focus on areas where he has greater discretionary authority, such as foreign policy and trade. Post-midterms, attention could return to trade agreements that are yet to be finalised. The administration may also lean more heavily on tariff and trade authorities, such as Section 301 or Section 232, to fulfil its goal of reshoring manufacturing. How active the administration remains in foreign affairs more broadly is less certain, with the Middle East conflict having drawn criticism from the “America First”, isolationist faction of the Republican Party. On balance, however, reduced ability to shape domestic policy could increase the scope for unpredictable foreign policy.
A Democrat-controlled House would also be expected to substantially expand congressional oversight of the administration. Committee chairs would gain subpoena authority and control over investigative agendas, increasing scrutiny of the actions of the executive. While impeachment becomes procedurally more plausible under Democratic House control, the removal of a president from office would also require a two-thirds supermajority in the Senate, which is a highly unlikely scenario.
Scenario two: Republicans lose both the House and Senate
Even if the Democrats controlled both chambers, they would still find it hard to pass major legislation. 60 votes are required to overcome a Senate filibuster, while a two-thirds supermajority across both chambers is needed in a vote to overcome a presidential veto.
That said, Senate control would give the Democrats some additional powers. Most importantly, the Senate confirms presidential nominations by simple majority, so a Democratic majority could materially shape (or constrain) President Trump’s appointments. This, in turn, would reduce the risk of challenges to the independence of key institutions, most notably the Federal Reserve.
More of the same
Overall, in a divided government scenario – our base case – Washington would likely enter a period of policy gridlock, and the US administration would face greater oversight and scrutiny. Reduced ability to shape domestic policy increases the risk of a more unpredictable US administration on the global stage, as well as even greater reliance on executive orders (see Exhibit 22). That said, investors should not be derailed. As we have learned in the first 18 months of Trump 2.0, the more chaotic the political backdrop, the more likely governments globally are to administer fiscal stimulus, which explains why we expect markets to continue to shrug off political noise.