Goldman Sachs: Previewing US midterms: Democrats poised to win House as fiscal negotiations become main policy battleground

What supports the case for a Democratic House victory?

As of the report's publication, prediction markets put the probability of Democrats winning a House majority above 90%. Democrats led by about 9 percentage points in national party preference polls; compared with the Republicans' 2.6-point lead in the national House popular vote in 2024, opinion had shifted toward Democrats by more than 11 percentage points.
Democrats need a net gain of just 3 seats to secure a majority. Prediction markets then implied a net gain of 21 seats, taking them to 236 seats, a larger majority than the governing party's slim majority of just over 220 seats since 2021.

Prediction markets put the probability of Democrats winning a Senate majority above 65%, but polling leads in key races are mostly within the margin of error. Since 2002, candidates leading by no more than 2.5 percentage points in polls have won only about six in ten competitive Senate races.
Democrats need to win in some Republican-leaning states; since 2002, Republican Senate candidates in such states have outperformed their pre-election polling margins by an average of 3 percentage points.
Goldman Sachs believes that if Democrats have already won the House, control of the Senate has a smaller additional effect on legislative prospects: most bills need bipartisan support to pass the Senate, and Trump can still exercise his veto. However, Democratic control of the Senate could block presidential nominees and strengthen Democrats' agenda-setting power in fiscal negotiations.

Government spending authorization expires on 11 December 2026. Given the parties' differences over policy and spending levels, Goldman Sachs expects Congress is more likely to extend the deadline to February 2027 or March than reach a full-year agreement before year-end.
The debt ceiling is expected to be reached in the first quarter of 2027. The Treasury can use its account balance and extraordinary measures to buy time, but Goldman Sachs expects Congress will need to raise the ceiling by October 2027 at the latest; these deadlines could force the parties to negotiate.
Goldman Sachs expects no major change in fiscal policy over the next two years, but Democratic control of Congress could lead to a modest increase in spending. Cuts in last year's fiscal package amount to about 85 billion dollars in 2027, equivalent to 0.25% of GDP; restoring health insurance subsidies would require about another 50 billion dollars annually under Democrats' previous proposal, with the outcome depending on negotiations.

Democratic leaders plan to roll back some tariffs, most likely focusing on a few countries, including Canada, or specific products; the measures could become part of fiscal deadline negotiations.
Goldman Sachs also expects Trump to announce new tariff increases after the election, large enough to exceed those reductions and lift the effective US tariff rate by a net amount of just under 2 percentage points. The bank expects measures arising from the Section 301 investigation into industrial overcapacity to bring rates on trading partners broadly back to their levels before the Supreme Court ruling.

Data centers have drawn attention in some state races, with some Democratic gubernatorial candidates proposing construction moratoriums or tighter restrictions. Goldman Sachs expects state and local measures to continue after the election, but sees a nationwide construction moratorium as highly unlikely.
At the federal level, Democrats may propose eliminating some tax benefits available to data centers; if a bipartisan agreement on AI regulation is reached, it is more likely to focus on company self-testing and basic federal oversight, while strict regulation would be harder to win bipartisan support for.