U.S. Midterm Elections: Democrats Favoured to Regain House as Senate Race Tightens

• BMI now strongly expects the Democrats to regain control of the House of Representatives in the November 2026 midterm elections, while the Senate race has become a toss-up. This marks a shift from its previous view that Republicans were likely to retain control of both chambers, reflecting weaker Republican support, rising dissatisfaction with the administration and growing economic discontent among voters.
• The deteriorating outlook for Republicans has been driven partly by elevated inflation and concerns surrounding the US-Iran conflict. Weak presidential approval ratings, particularly on the economy, have weighed on household sentiment, while higher living costs and geopolitical uncertainty have reinforced the risk of a significant electoral setback for the administration.
• Meanwhile, the Senate outcome remains uncertain despite a favourable electoral map for Republicans. Democrats require a net gain of four seats to secure a majority, but improved polling and betting-market prospects in states such as North Carolina, Texas, Alaska and Ohio have made the contest more competitive. Further deterioration in the Iran conflict or another increase in inflation could shift marginal races further in the Democrats’ favour.
• A Democrat-led Congress would constrain the administration’s legislative agenda but would not necessarily prevent it from pursuing its existing policy priorities. Major legislation would face greater resistance, while the administration would likely rely more heavily on executive action, particularly in foreign policy and trade. Congressional scrutiny of the administration would also intensify, potentially increasing policy uncertainty.
• The prospect of divided government also raises the risk of fiscal brinkmanship and renewed upward pressure on US Treasury yields. Disagreements over government funding, spending priorities and the debt limit could result in prolonged negotiations and government shutdown risks. If Democrats also secure the Senate, confirmation of senior administration officials and judicial nominees could face significant delays.
• Looking ahead, the two-month period between the November elections and the seating of the new Congress in January 2027 could prove particularly consequential. Republicans may seek to advance government funding, increase the debt limit and accelerate controversial nominations before potentially losing their majorities. However, the transition also creates a heightened risk of a government shutdown, with the current funding deadline set for December 11, 2026.

(Source: BMI, A Fitch Solutions Company)