Sumitomo Mitsui Banking Corporation: Limited Impact of Midterm Elections on U.S. Treasury, Democratic Victory May Push Rates Higher

Sumitomo Mitsui Banking Corporation (SMBC) reports that the results of the U.S. midterm elections on November 3 will have a limited impact on the interest rate market. If the Democratic Party controls both the House and Senate, it may push for increased healthcare spending, leading to a slight rise in U.S. Treasury yields. The report estimates that if the Democratic healthcare policies are fully implemented, spending could increase by $1.5 trillion over the next decade; the cost of restoring subsidies under the Affordable Care Act (ACA) is approximately $80 billion over three years and $350 billion over ten years. If Congress is divided between the two parties, significant tax and spending adjustments are expected to be difficult to advance, and tariff policies are unlikely to be directly overturned by Congress. The report notes that local governments may strengthen restrictions on the construction of AI data centers or eliminate favorable tax policies, slowing down some AI investments, but this may have a limited impact on overall economic growth and the Federal Reserve's policy path. Additionally, the report anticipates that the U.S. Treasury is unlikely to reach the debt ceiling before the fall of 2027, with related negotiations potentially delayed until early 2028.

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