Donald Trump’s loss of control of the House of Representatives and the Senate has put the world economy on notice for an unpredictable final two years of his presidential term.
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loss → put → term
After Democrats swept aside his Republican party in the midterm elections, analysts said the prospect of a highly erratic lame-duck president would have significant implications for financial markets, growth, inflation, government borrowing costs and living standards.
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prospect → sweep → markets
Here are the biggest expected consequences for the US economy and for other countries.
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consequences → expect → countries
Markets initially dropped in early trading in Asia overnight but rallied as investors weighed up the midterm results.
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investors → drop → results
Investors typically dislike uncertainty and political chaos.
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Investors → dislike → uncertainty
The fact that the president conceded the result and acknowledged the impact of the Iran war has been taken as a positive in markets.
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president → concede → markets
However, his warning that he will become “Mr Veto” raises the prospect of a turbulent finale to his time in the White House.
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he → become → House
Holger Schmieding, the chief economist at Berenberg, said the result showed that US voters had “rejected Trump and his somewhat authoritarian penchant for crony capitalism.
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voters → say → capitalism
[That] shows that US institutions and its checks and balances work.
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institutions → show → ?
Traders expect the Democrats to take a tougher line on AI regulation and the datacentre rollout, raising questions over a driver of stock market growth.
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Democrats → expect → growth
There are also concerns that Trump, with the midterms out of the way and his control over domestic policy weakened, could take a more aggressive approach to foreign policy, with potential to intensify the war in Iran.
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control → be → Iran
The cost to US households from surging inflation triggered by a deeply unpopular war, alongside a chaotic tariff policy that has devastated small businesses, was key to the midterm result.
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that → surge → result
US diesel prices surged to a record high in August, while the headline inflation rate has risen to 3.7%.
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rate → surge → %
The US-Israeli invasion of Iran, leading to the closure of the critical strait of Hormuz, reignited global inflationary pressures amid the biggest energy price shock of the modern age.
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invasion → lead → age
Oil prices have fallen back thanks to hopes of a diplomatic breakthrough.
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prices → fall → breakthrough
However, Brent crude, the international benchmark, remains above $100 a barrel, significantly higher than its prewar level of about $70.
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crude → remain → 70
As a consequence, the International Monetary Fund expects global headline inflation to rise to 4.7% this year, with energy-importing countries hardest hit.
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countries → expect → %
The possibility of Trump ramping up hostilities against Iran would add to the inflationary shock, but it would also further add to his unpopularity.
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it → ramp → unpopularity
Higher inflation has forced central banks to raise interest rates, with the US Federal Reserve defying pressure from Trump by increasing the cost of borrowing for the first time since 2023.
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Reserve → force → 2023
Against a volatile backdrop in the war and as inflationary pressures persist, investors anticipate at least one more rate increase from the Fed.
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investors → persist → Fed
The Bank of England is expected on Thursday to raise rates, while the European Central Bank is also expected to push up borrowing costs.
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Bank → expect → costs
After losing control of Congress, the Republicans will lack the votes to confirm new appointments to critical public bodies, including new Fed governors.
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Republicans → lose → governors
Trump could still use his veto powers, which can be overturned only if two-thirds of both chambers agree.
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thirds → use → chambers
Government finances
Higher inflation and interest rates triggered by the Iran war have driven up borrowing costs, adding to the pressure on countries with high levels of public debt.
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inflation → trigger → debt
In the US, the logjammed political system will face its first major test on 11 December, when politicians have to agree to authorise government spending to avoid a shutdown.
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politicians → face → shutdown
The gridlock could prevent Trump from launching new tax and spending measures, which could cut two ways, restricting the capacity for fiscal stimulus to boost the economy, but also limiting a further rise in borrowing and debt.
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which → prevent → borrowing
Analysts say the crushing midterm defeats for Maga candidates will hurt the president’s authority and could pave the way for more cooperation between Republicans and Democrats in Congress.
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defeats → say → Congress
Analysts say political turbulence and presidential actions on trade and immigration could put US growth at risk, but inflation and, most importantly, the prospects for de-escalation in the Middle East are the main factors to watch.
Investors are wary that a clampdown by the Democrats on AI could hit investment and growth in the US.
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clampdown → say → US
The spillovers from the tech boom have been felt around the globe, with AI investment helping to bolster the UK economy.
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investment → feel → economy
However, tech industry leaders were already cooling on the rollout of AI amid concerns over cyber risks.
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leaders → cool → risks
Many investors also feared the emergence of a bubble in the US stock market.
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investors → fear → market
Analysts at Allianz say the scale of AI investment, and its capacity to power global economic growth, could mean the left-right political playbook is less predictable than in the past.
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playbook → say → past
The Aporia
