The US dollar faces a key test around the 3 November US midterms, with markets still pricing a December Federal Reserve move but with Congress potentially reshaping fiscal expectations and, indirectly, the 2027 rate path. Voters will choose all 435 House seats and 35 Senate seats, as inflation stays elevated and US Treasury yields sit at their highest in more than two decades. Prediction-market pricing points to a 63% chance of Democrats taking both chambers, versus 28% for a Democratic House with a Republican Senate, and 11% for Republicans holding both; the Senate’s role in confirming Fed Board of Governors nominees adds another policy channel.
Fed Policy and Election Period Trends
History suggests the Fed often stays put into elections, though it is not bound to do so. A CME Group study of 27 cycles from 1972 to 2024 found no rate change in 52% of periods from 1 September to Election Day, rising to 67% from 1 October; across 13 midterms it was 54%, or 62% excluding 1982. CME FedWatch pricing puts the odds of an October hold at 15%, while December hike odds are near 88%.
Market Scenarios and Post-Election Priorities
Scenario work ties a Republican sweep to ING projections of 10-year yields above 5.5% and 2-year yields near 5%, a split Congress to 10-year yields in a 5.25%–5.5% range, and a Democratic sweep to a modestly weaker dollar with 10-year yields approaching 5.5%. Markets then turn to the 11 December funding deadline, January 2027 seating, and the debt ceiling.
