Trump’s midterm defeat puts oil, inflation and global growth in focus

Donald Trump faces a weakened final two years in office after Democrats won control of both chambers of Congress, leaving the global economy exposed to uncertainty over US spending, trade and the course of the Iran war.

The midterm result will constrain the president’s legislative agenda without settling the questions driving inflation and borrowing costs. Financial markets initially fell in Asian trading before recovering as investors assessed the outcome, according to the Guardian’s account of the economic reaction on 4 November.

The immediate market response suggested investors saw some reassurance in stronger checks on presidential power. But the longer-term outlook depends heavily on energy prices, interest rates and whether investment in artificial intelligence continues to support growth.

Oil prices fall, but inflation pressure remains

Brent crude dropped by as much as 9% on Wednesday, trading below $100 a barrel for the first time in a month amid hopes of a diplomatic breakthrough over Iran. At about $94, however, the international benchmark remained well above its prewar level of roughly $70.

That gap matters for households and businesses already facing higher energy costs. The Guardian reported that US headline inflation had reached 3.7%, while diesel prices had hit a record high in August.

The report also cited an International Monetary Fund forecast putting global headline inflation at 4.7% this year, with energy-importing countries facing the greatest pressure.

A sustained fall in oil prices would therefore be important, but the election result does not itself establish that energy costs will keep declining. Renewed escalation in Iran could add to inflationary pressure rather than relieve it.

Higher inflation has already prompted the US Federal Reserve to raise borrowing costs for the first time since 2023. Investors expect at least one further increase, illustrating why a weaker presidency does not necessarily mean cheaper credit.

A tighter domestic agenda, with a spending deadline ahead

Democratic control of the House of Representatives and Senate will make it harder for Trump to secure new tax and spending measures. The economic consequences could run in both directions: less scope for stimulus, but also less room for policies that increase borrowing and debt.

A nearer-term test comes on 11 December, when US politicians must authorise government spending to avoid a shutdown. That deadline is separate from the incoming Democratic majorities’ longer-term influence over the president’s remaining term.

Trump retains his veto, which requires a two-thirds majority in each chamber to overturn. His warning that he would become “Mr Veto” points to the possibility of confrontation rather than a straightforward shift towards compromise.

Holger Schmieding, chief economist at Berenberg, offered a more positive assessment of the election outcome, saying it demonstrated that US institutions and checks and balances were working.

War and AI remain central growth risks

Constraints on domestic legislation do not remove the president’s ability to act abroad. In a Foreign Affairs analysis, political scientists Daniel W. Drezner and Elizabeth N. Saunders warned that a weakened Trump could turn towards foreign policy, where Congress has less influence over day-to-day decisions. That is a risk assessment, not an announced change in US policy.

Technology investment is another source of uncertainty. Investors expect Democrats to take a tougher approach to AI regulation and data centre expansion, potentially affecting a sector that has supported stock market gains and economic activity beyond the United States.

The forecasts nevertheless remain mixed. The IMF’s October projection put US growth at 2.3% in both 2026 and 2027. Berenberg analysts, by contrast, see growth potentially slowing to about 1.5% in 2028, citing political gridlock, weaker momentum in AI and the effects of Trump’s immigration crackdown.

The election has changed the balance of power in Washington. Whether that produces a more stable global economic outlook will depend less on the result alone than on what follows in the Middle East, energy markets and US policymaking.