US Midterms Could Constrain Trump, but Iran Remains the Bigger Economic Risk

Democrats have a strong chance of taking the House of Representatives and could also win the Senate, according to PKO Bank Polski’s analysis ahead of the 3 November US midterm elections. That result would make Donald Trump’s fiscal agenda harder to implement. The course of the war with Iran and its effect on energy prices could nevertheless matter more for the global economy and Polish markets.

Americans will elect all 435 members of the House and fill 35 of the Senate’s 100 seats. The vote will determine whether the president can rely on his party’s support in both chambers over the next two years.

The Economist’s election model, cited by PKO Bank Polski (PKO BP), gives Democrats a House majority in 95% of simulations and a Senate majority in 54%. Polymarket prediction-market prices presented in the bank’s 30 October report put the respective probabilities above 92% and 67%.

These are estimated chances of winning a majority rather than forecast shares of the vote. The analysts caution that an advantage in models and betting markets does not determine the election result.

High prices and borrowing costs weigh on Republicans

Deteriorating assessments of the economy are working against Republicans. Figures cited in the report show that the share of Americans describing economic conditions as poor rose from around 35% at the start of Trump’s second term to around 45% in October 2026.

Prices remain the main problem. More than 30% of voters identify inflation as the most important domestic policy challenge. PKO BP links stronger price pressure to the Middle East war, damage to energy infrastructure and restrictions on shipping through the Strait of Hormuz.

According to the bank, annual US CPI inflation rose from 2.4% in January to 4.2% in May, before easing to 3.7% in September. Price growth had slowed from its spring peak but remained above its pre-war rate.

Housing costs add to the pressure. The analysis cites a 7.4% rate on 30-year fixed-rate mortgages in October. Rates had risen by almost a percentage point in three months, reducing households’ borrowing capacity.

A Democratic majority would constrain Trump’s domestic agenda

Opposition control of Congress would not give Democrats a free hand to reverse presidential policy. Trump would retain his veto, which requires a two-thirds majority in each chamber to override. PKO BP considers a Democratic majority of that size extremely unlikely.

It would, however, change the conditions for passing budgets and new laws. The administration would have to negotiate with the opposition, and Congress could exercise more effective oversight of the federal government. Taking the Senate would also give Democrats influence over confirmation of senior appointments, including at the Federal Reserve.

The analysts also see a greater risk of a government shutdown, in which some federal operations are suspended because funding has not been agreed. Disputes over spending could become a means of putting pressure on the White House.

A congressional majority alone would not be sufficient to remove the president from office. The House can impeach by a simple majority, but conviction in the Senate requires support from two-thirds of senators present.

Less fiscal stimulus could support US government bonds

PKO BP argues that losing at least one chamber would limit Republicans’ scope for expansionary fiscal policy. Less government stimulus could weaken short- and medium-term growth while reducing investors’ concerns about US public finances.

That could favour lower Treasury yields, particularly at longer maturities. Investors might demand a smaller additional premium for the risks of financing US debt over many years.

The effect on the dollar would be less clear-cut. A reduction in fiscal imbalances could support the currency over time. In the near term, however, the bank expects weaker economic stimulus to create more room for easier Federal Reserve policy, weighing on the dollar.

That assessment depends on developments in the Middle East. Higher energy prices could revive inflation concerns and prompt a more restrictive Fed stance.

Iran remains the main risk

PKO BP suggests that constraints on Trump’s domestic agenda could encourage greater activity abroad. The president will retain broad foreign-policy powers regardless of the election outcome.

The report’s authors judge that statements by US officials and media reports have increased the likelihood of renewed attacks on Iran after the vote. They present this as a risk scenario rather than a predetermined outcome.

The most important economic consequences would concern oil and gas supplies. A continuing conflict of moderate intensity could keep commodity prices high and volatile, while a major escalation could trigger another jump. An agreement and reduced hostilities would lower the portion of oil prices attributable to fears over supply security.

The bank expects an escalation to strengthen the dollar through both demand for safe assets and expectations of higher interest rates. Those forces would work in opposite directions for Treasuries: safe-haven demand would support bond prices, while inflation concerns would push yields higher.

Energy matters more for the zloty than the composition of Congress

The analysts do not expect a change in the US congressional majority alone to determine the outlook for the zloty or Polish bonds. Its influence would mainly be indirect, through the dollar, US interest rates and capital flows.

An escalation of the war would be a much greater threat. More expensive energy commodities would increase inflation pressure in Poland, while investors’ retreat from risk could weaken the zloty. PKO BP expects Polish bond prices to come under pressure in that scenario as well.

The bank maintains a positive outlook for Poland’s currency and debt, based on domestic economic conditions and its view that the market is pricing future NBP rates too high. Another rise in oil and gas prices could undermine those expectations.

Source: PKO Bank Polski, “Makro Focus: What do the midterm elections mean for the US and the global economy?”, 30 October 2026. Polish original published on 30 October 2026: CEO.