U.S. borrowers face limited credit impact from midterm elections, S&P says

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US midterm election credit impact

Highlights

S&P Global Ratings reports U.S. midterm elections mainly affect credit via regulatory and policy changes, not direct borrower credit conditions.
Foreign and defense policy, AI regulation, and trade pose primary credit risk for corporates, while banking regulation, consumer protection, and healthcare policy impact financials and insurers.
A Democratic sweep would stall the administration's legislative agenda and intensify budget negotiations, while Republican control supports more legislative action, notably tax and regulatory priorities.

Policy risks across sectors

As reported by S&P Global Ratings, the main credit implications of the U.S. midterm elections are likely to come through changes in regulation and policy direction rather than any direct deterioration in borrower credit conditions.

For corporate borrowers, the report says foreign and defense policy, artificial intelligence-related regulation and trade are the main areas that could shape credit risk. For financial institutions and insurers, the potential effects are concentrated in banking regulation and oversight, consumer protection and healthcare policy.

The Trump administration has used budget reconciliation to advance major legislative measures, including the One Big Beautiful Bill Act of 2025, and has also relied heavily on executive orders and regulatory actions. In the final two years of the presidency, executive action and regulation are expected to play an even larger role, especially if Democrats regain one or both chambers of Congress.

Congressional control and fiscal outlook

Control of all 435 House seats and 35 Senate seats up for election could still influence the future path of fiscal priorities, regulation and oversight, even though the administration retains broad room to act on trade and foreign policy.

A Democratic sweep of both chambers would likely slow parts of the White House legislative agenda and give Democrats greater leverage in budget negotiations. That could increase clashes over immigration, climate policy and the federal workforce through the appropriations process.

If Democrats win only one chamber, the result would likely still produce political gridlock and push the president toward more unilateral action. By contrast, if Republicans keep majorities in both chambers, S&P says that outcome would be more favorable for the administration, supporting possible legislative action through reconciliation, including tax extensions or changes, along with easier passage of immigration, border, energy and regulatory priorities.

In our earlier article on rising U.S. Treasury yields and the widening federal deficit, we explained how long-term borrowing costs were feeding through to mortgage rates, federal interest expenses and broader financing conditions. We also noted that with the midterms likely to produce political gridlock, the odds of a near-term fiscal deal to slow debt growth looked limited even as deficits neared $2 trillion and total U.S. debt approached $40 trillion.

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