The US midterm elections will take place on Tuesday, 3 November and, as usual, all 435 seats in the House of Representatives and 35 of the Senate’s 100 seats will be contested.
Betting markets have shifted in favour of the Democrats in recent months, partly because many Americans believe the Trump administration’s policies have worsened the cost-of-living squeeze.
Polymarket, an online betting market, puts the probability of a Democrat Sweep at 66%, compared to just 8% for continued Republican control of both chambers. It assigns a 27% chance to a divided Congress, with a Democrat House and Republican Senate.
The economy is expected to remain strong over the next six to 12 months and the Fed is forecast to raise interest rates further, regardless of the result.
The election outcome will determine less whether president Donald Trump’s economic programme survives than how much further it can be extended – and how effectively Congress can curb the presidency.
A Democrat sweep, the most likely outcome, would impose the strongest constraints on the current administration, strengthen Fed independence and give Democrats greater bargaining power over spending, yet we do not expect major policy reversals.
It looks most favourable for treasuries at the margin and, at least historically, a unified Democrat governed Congress has been the best outcome for S&P 500 performance, on average returning 8.8% over the three months following the election.
Midterms to reshape policy expectations
Midterm elections attract less attention than the race for the White House but they do matter. The president’s party usually loses seats, often surrendering control of one of the two chambers.
Midterm results can therefore reshape expectations for taxation, public spending, trade policy and appointments to powerful institutions, with potential implications for the economy and financial markets.
The central question is whether Democrats can retake one or both chambers – and impose some restraint on a presidency that has encountered remarkably little resistance from Congress, even when the White House has stretched its authority.
The alternative is that Republicans retain Congress, allowing the Trump administration to pursue its agenda largely unhindered for another two years.
Democrats need a net gain of three seats to capture the House and four to win the Senate. A 50-50 Senate would remain under Republican control because the vice-president casts the deciding vote.
The House looks relatively easy to flip, given that all 435 seats are for grabs even if gerrymandering has made some districts ‘off-limits’. The Senate is considerably harder, given that only around one-third of the seats are being contested.
A punishing electoral environment
Polymarket puts the probability of Democrat control of the House at 92% and of the Senate at 66%. These outcomes are not independent. If Democrats manage the harder feat of taking the Senate, the market reckons there is a 99% chance that they will also win the House.
The implied probability of a ‘Blue Sweep’ is also about 66%. A Democrat House and Republican Senate, the likeliest form of divided government, has a probability of 29%. Republicans are given just a 7% chance of retaining both chambers; the odds of a Republican House and Democrat Senate are less than 1%.
The first reason is history, in each of the completed midterm elections over the past 20 years, control of at least one chamber changed hands. The second is affordability, Donald Trump campaigned on curbing immigration, which he has done, and lowering the cost of living, which he has not.
Tariffs, the war in Iran and its impact on gasoline and diesel prices and, to a lesser extent so far, provisions in the One Big Beautiful Bill, have instead made matters worse.
Most losses of healthcare coverage will occur only after the midterms. PCE inflation troughed at 2.3% in April 2025 before rising steadily to peak at 4.1% in May of this year. Inflation fell to 3.7% in July, but we do not expect a return to 2% any time soon.
The third is Trump’s unpopularity, only around 35% of voters approve of him, whereas about 62% disapprove. Midterms are not simply referendums on the occupant of the White House, though history suggests that presidents with ratings this poor face a punishing electoral environment.
US economy will remain strong
The election will determine less whether president Trump’s economic programme survives than how much further it can be extended – and how effectively Congress can curb the presidency.
A Democrat sweep would impose the strongest institutional constraints, particularly over appointments, and help insulate the Fed from political attacks. It would probably shift some spending priorities, though not, in our view, materially alter the country’s fiscal trajectory.
A divided Congress gives Democrats less influence over spending and leave Republicans in control of appointments. Under either outcome, Democrats would have to negotiate with Republicans or the White House to pass legislation, including measures on the budget and debt ceiling.
Continued Republican control of both chambers would give the administration the freest hand and somewhat more fiscal largesse, though bond markets would probably limit its ambitions.
The main forces shaping growth and inflation lie beyond the electoral cycle. In every scenario, the AI investment boom is expected to continue, the economy to remain strong over the next six to 12 months and the Fed to raise rates further.
Even so, the election will influence the policy environment in which these forces unfold. Democrat control of both chambers might slow the AI build-out at the margin but it would also reduce the threat to the Fed’s independence, and the risk-premium shock that renewed attacks on the central bank could provoke.
Such attacks would be more likely if Republicans retained Congress. A unified Republican government might also deliver additional fiscal stimulus, supporting nominal GDP growth at first but ultimately requiring higher interest rates and inviting further clashes with the Fed.
Uncertainty remains elevated
The Republican sweep that followed the presidential election two years ago culminated, after ‘Liberation Day’, in the largest increase ever recorded by the Baker, Bloom and Davis Economic Policy Uncertainty index.
A Democrat sweep or divided Congress could produce bruising confrontations over government funding and the debt ceiling. Yet either scenario would also act as a brake on the administration’s most disruptive policies. Much, too, will depend not merely on who wins, but by how much.
Raphael Olsyzna-Marzys is an international economist at J. Safra Sarasin Sustainable Asset Management. The views expressed above should not be taken as investment advice.