Krungsri Securities (KSS) has released its macroeconomic outlook ahead of the U.S. Midterm Election in 2026, highlighting potential shifts in the balance of power within Congress. The likely change in congressional control is expected to increase constraints on fiscal policy and budget execution, with a positive knock-on effect for emerging markets due to easing pressures on U.S. bond yields, even as government support for the U.S. economy declines.
Recent polling and election forecasts indicate improved prospects for the Democratic Party. Decision Desk HQ (DDHQ), an American website that focuses on reporting election results in the United States, estimates that Democrats have a 68-69% chance of controlling the House and a 51% chance in the Senate, while a Marquette Law School Poll from September 2–9 shows Democrats leading the generic congressional ballot among likely voters by 54% to 41%. However, the Senate races remain highly competitive, particularly in swing states, leaving the outcome uncertain.
Domestic economic issues, specifically inflation and the cost of living, have emerged as the most significant concerns among voters, with 37% prioritizing these issues and an additional 16% focused on the broader economy.
Approval ratings for the Trump administration remain low, at 19% for inflation management and 28% for economic policy, highlighting that affordability and living costs are central to this election—more so than immigration and border security, areas in which Republicans perform better in polls.
Based on these trends, Krungsri assesses that the midterm outcomes could result either in a divided government or Democratic control of both chambers, with three major implications.
Fiscal policy will be most directly impacted, as measures such as tax cuts, economic stimulus, and government funding all require legislative approval. The incoming political configuration is likely to slow policy momentum, raise the risk of gridlock, and make budget negotiations more complex, resulting in a weaker fiscal impulse rather than immediate structural policy changes.
Loss of control in the Senate would significantly affect policy execution, particularly in confirming high-level appointments—including judges, senior officials, and Federal Reserve Board members—that require both presidential nomination and Senate approval.
Executive-driven policies, such as trade, immigration, and foreign affairs, will be less affected by the midterm results, given the president’s significant executive authority. Nevertheless, Congress retains some power to impose legislative constraints and influence budgets.
Krungsri concludes that fiscal-driven economic support will become more limited while volatility in President Trump’s policies will be more constrained. Consequently, upward pressure on U.S. bond yields stemming from fiscal deficits should moderate, the impact of government policy on the economy will wane, and policy volatility is expected to decrease.
Overall, Krungsri views the U.S. midterm outcome as “mildly positive for risk assets,” citing potential relief from bond yield pressures, which could offset weaker government stimulus and diminish the risk associated with aggressive U.S. negotiation tactics toward other nations.
MUFG, in alignment with this view, projects that U.S. bond yields will peak in 3Q26 to early 4Q26 before declining. The 2-year yield is forecast to fall from approximately 4.6% to 4.25% by year-end, while the 10-year yield is expected to drop from close to 5.2% to about 4.6%. This trend reflects ongoing moderation of inflation and energy shocks, enabling greater focus on monetary easing, even as fiscal risks and long-term Treasury supply continue to limit downside potential for longer-term yields.
The dollar index, according to MUFG, may rise short-term to about 101 in early 4Q26 before weakening to around 98 in early 2027, as yield differentials narrow and capital rotates away from U.S. assets amid reduced economic and geopolitical risks.
Krungsri sees any short-term pressure on emerging market assets from higher U.S. bond yields and a stronger dollar as a strategic buying opportunity. Historically, a weaker dollar and stronger Asian currencies have benefited Asian equity markets by reducing FX risk, easing financial conditions, and supporting fund flows back into emerging market assets.
Accordingly, the brokerage suggests that the current market environment is favorable for gradually accumulating risk assets within emerging markets.
