Key Takeaways
The midterms were a huge Democratic Blue Wave victory. They took control of both the Senate and House. This will cause legislative gridlock in Congress.
In the Iran War, Trump has shifted to economic warfare in the hopes of throwing the Iranian economy into turmoil. The Houthis in Yemen have gotten very aggressive in recent weeks and now jeopardize commerce through the Red Sea. The President is now faced with a difficult decision between escalation of the war or accepting an unsatisfactory settlement of it.
The US economy is very strong and gaining momentum. AI and related industries as well as US energy industries are showing strength. Corporate earnings in general are at record highs and look to stay strong. The job market is very solid and adding jobs with none of the predicted fears of massive AI driven unemployment emerging so far. But the stock and bond markets are very volatile with large swings and likely to remain that way.
Growth and spending in the AI arena are being slowed by citizen opposition to data centers in local communities. Both Democratic and Republican politicians are supporting the locals in these battles. Increased regulation of AI is also being implemented.
A Note to Readers
For eight years almost all my political or economic predictions were accurate. That ended with a massive botch by me with my 2026 midterms predictions.
My sincere apology. I will learn from my mistakes.
Why the Democrats Won a Huge Victory
US midterm elections are often “kick the bums out” elections. 2026 was such an election.
There were numerous factors that influenced the results of the 2026 midterms, but three policy and substantive issues were the most important causes of the massive D victory. They were:
Affordability/ High Cost of Living – There is no question that the #1 issue in the election was affordability and the high cost of living. The high cost of gasoline, food, and various other energy related goods put tens of millions of US households in a position where they could not pay all their monthly bills without going further into debt. This problem was started by the Biden administration, but the Trump administration did little to address it and the Iran War made it noticeably worse. Although the country’s economy is in good shape and growing, what mattered to voters was not the macro-economic situation but, rather, the micro-economic situation in their own household.
Trump’s Tone and Style – President Trump’s aggressive style turned off many voters, even some Republicans. His arrogation of powers to himself not officially justified frightened many voters. And his inability to explain US goals in the Iran war was part and parcel of incoherent messaging by the Rs. The Ds were no better, but they had the compelling negative arguments on their side.
The Iran War – The main impact on the midterms of the Iran War was making the affordability crises worse by pushing up energy prices. But it also affected a separate aspect of voter decision making. Trump had been a strong opponent of “forever wars” but chose to get the US into a new war that is dragging on.
These three issues are deeply intertwined with each other and effectively merged into a composite issue which drove turnout, voter choices, and the massive D win.
Note that none of the three reasons above concerned policies the Ds were advocating to improve life in the country. They were all negative, but they worked.
Putting the 2026 Midterms in Perspective
Since 2000, we have had seven Presidential elections and seven midterms. Republicans won four of the seven Presidential elections – Bush won twice, Trump won twice, Obama won twice, and Biden once. In the seven midterms the Ds won three “wave elections” and the Rs won two.
The point is that our two political parties have shown equal strength in recent decades. Both have had multiple wave election midterm wins.
This century, big midterm or Presidential election victories have not signaled dominance by the winning party in the next election.
What Comes Next?
Trump and the country have been here before. In 2018, after two years of Trump’s first term in office, the Ds scored a Blue Wave in the 2018 midterms and took control of the House of Representatives. What happened over the next two years then provides a template for what is likely for the next two years.
It is certain that little major legislation will get through the next Congress from 2027 through 2028- i.e., gridlock. The Ds will firmly control both houses after the new Congress is seated in early January. The Rs will be rushing as much legislation and as many appointments through while they still control Congress for the next two months.
The Ds will launch dozens of investigations targeting Trump and his administration. It will not be surprising to see the President and some officials in his administration impeached. But none are likely to be removed through a trial in the Senate. Such impeachments will be for political show.
The next two years in Congress will be ugly, but we have been there before and will muddle through.
The 2028 Presidential cycle has already begun and will see numerous candidacies announced in weeks or months. Nomination debates will arrive in early summer.
Neither party has an incumbent and the party nominations are wide open.
The Economy and Markets
Economic Data
NEW – The jobs report for October showed a huge gain of 165,000 net new jobs, far above expectations. The unemployment rate fell to a quite low level of 4.1%.
The first official estimate of Q3 GDP came in at a strong +3.4%.
The Fed’s favorite inflation measure came in with an increase of 0.5% for September and 3.6% year-over-year, both higher than the Fed will tolerate.
NEW – Last week’s unemployment insurance claims fell even further to an extremely low 189,000.
NEW – The job openings report saw a large increase in advertised jobs, rising from 7.1 million to 7.5 million.
NEW - The latest estimate for Q4 GDP from the Atlanta Fed GDPNOW is a strong +3.4%.
NEW – Q3 productivity increased dramatically to 3.6%. Productivity increases are the most important factor in improving the quality of life in the US over the long run.
NEW – Q3 earnings continue to be extremely strong. Corporate earnings are increasing dramatically across many industries but especially tech and energy. Those large and widespread increases are forecast to continue into 2027. That bodes well for stock prices over the next year but be aware that high volatility will likely remain.
The US Economy Overall
NEW – The US economy overall remains very strong and in good shape. The job market is adding jobs at a higher rate than new job seekers are entering the labor market. The unemployment rate is down to a very low 4.1% and the number of open jobs is increasing. Corporate earnings are extremely strong and economic prospects for 2027 look good.
But at the household level things are not as sanguine. High prices for gas and food, as well as some other prices, have left tens of millions of families having problems making ends meet. That fact was the most important reason for the massive D win in the midterms.
Energy prices should fall next year as the Iran war or Ukraine war, or both, are settled. The settlement of neither war is guaranteed but the fighting has shown that neither side in either war can achieve a clear “win.”
The stock markets and bond markets continue to show extreme volatility. Corporate earnings are likely to be strong going into 2027 and a 2027 recession is very unlikely. Inflation and interest rates will fall if either of the wars are settled. The extreme levels of AI spending and growth are likely to slow but AI will change business and society in fundamental ways.
A slowdown in AI growth and spending is being driven mostly by citizens opposing new data centers in their communities but also by new regulatory demands to protect the public and country from unexpected threats.
Global Watch Updates
Global Short-Takes
Ukraine War – With the ending of the Iran war the top foreign policy goal of the Trump administration, the Ukraine war’s settlement is likely to be on the back burner for a while.
Several weeks ago, Israel held an election for its parliament, the Knesset. Prime Minister Netanyahu’s coalition won the most seats but not enough for a majority in the parliament. Expect months of negotiations and maybe even another election if the negotiations fail as many expect.
Israel has moved decidedly to the right because of Palestinian and Iranian attacks over recent decades. The next government is certain to be strongly right or center right.
The Iran War
President Trump is faced with a major decision about how to proceed with the Iran war and its potential settlement. Does he escalate in the hope that substantially more damage to the country’s military and economy will cause it to settle on the US’s terms? Or does he accept a modest settlement leaving much of Iran’s ability to threaten its neighbors intact?
Neither choice has much appeal, but neither does continuation of the conflict.
To make things more difficult, Iran’s allies, the Houthis of Yemen, are now in a major war with the Saudis. Commerce on the Red Sea is again in danger. Major damage is being done to both countries, but Saudi assets are now at the greatest physical risk.
Ideas to Remember
The US is the world’s dominant power. China and Russia are declining in power relative to the US.
Take Trump seriously but not literally. Remember he is always setting up the next negotiation. His off-the-cuff comments frequently cause major confusion.
The Republicans have become the party of the working-class and middle-middle class. The democratic socialists are now a serious threat to the Ds.
In politics, it’s the economy, stupid. The average household will be able to balance their budget or else the party in power will be punished.
Political Psychiatry 30-Day Test
With daily disturbing news, take a deep breath and ask if that news will matter much in 30 days or so. Only rarely will it be important. So, ignore it, and lower your blood pressure.
My primary goal is to present accurate facts, analyses, and predictions. Another goal is to live in neither the Land of Chicken Little, where the sky is always falling, nor in Fantasy Utopia Land, where everything is always going to be fine.
Predictions – Methods & Standards
My method – gather accurate facts, analyze them with no biases, and make accurate predictions.
The Tuchfarber Standard – make predictions on important issues when I’m over 80% convinced the prediction will be correct.
My written 248 predictions in the TR over the last four years have been 97% correct.
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Al Tuchfarber PhD -- Professor Emeritus of Political Science, University of Cincinnati
Dr. Tuchfarber founded the Ohio Poll, one of the country’s most accurate, while directing the Institute for Policy Research at the University of Cincinnati for four decades. He is an engaging, informative, and dynamic speaker. Al has published well over 100 publications about politics, political-economics, society, and research methods.
Dr. Tuchfarber is available for consultation, a talk in your town, or a Zoom meeting.
