Election Year Forecast: A Divided Congress

Unified Republican control has locked in the Trump tax cuts, but shifting political winds point toward a likely Democratic takeover of the House in the 2026 midterms, while Republicans are favored to retain the Senate. That outcome would create divided government and force more bipartisan negotiation on fiscal policy and spending. For markets, this mix suggests continuity on tax policy, limited scope for large new spending programs, and a higher bar for sweeping regulatory changes.

The bigger swing factor is how far President Trump pushes executive “impoundment” powers to delay or withhold appropriated funds. A legal victory for broader impoundment authority could mark a structural shift toward stronger presidential influence over spending levels, with long-term implications for deficits, Treasury supply, and risk premia across fixed income and equities.