2026 Midterms Preview: What Divided Government Could Mean for Financial Services, Healthcare, Data Centers, AI, Tariffs, Funding

If Democrats win either chamber, Republicans would relinquish control over legislative priorities and committee leadership. A change of control is likely to result in a flurry of investigations, subpoenas and oversight hearings on an array of topics and industries that could pose headline risks for companies. Lawmakers could also seek to boost oversight of Trump administration officials and regulators. A flip of the Senate would also add the ability to block confirmations for presidential appointees.

A divided government would mean significant legislative packages are less likely outside of must-pass appropriations or defense bills. In the event of a flip, there could be some areas for cross-aisle collaboration, such as permitting reform. Although a Democratic House, Senate or both can hold markups and pass messaging bills, any legislation will likely require President Donald Trump’s signature. A veto-proof two-thirds majority appears beyond the reach of either party. Most contested legislation will also need 60 Senate votes and, therefore, at least some bipartisan support.

If Democrats only flip one chamber, the result could be further gridlock on Capitol Hill. If neither chamber changes hands, Republicans would be empowered to press forward with existing agenda items, but their majority would likely be narrow. Regardless of the election outcome, the Trump administration can also continue pressing ahead with its regulatory (often deregulatory) rulemaking agenda, but a Democratic victory in the House or Senate could result in increased scrutiny of such efforts.

A Democratic flip could motivate Republicans to take action on key priorities such as the budget and potentially raising the debt ceiling during the post-election lame-duck period before the new Congress sits on Jan. 3.

As of publication, Democrats are expected to win the House, but the Senate race is a toss-up, according to forecasts from The Economist and Decision Desk HQ. Election handicappers at Sabato’s Crystal Ball and The Cook Political Report also predict Democrats take the House and see a much tighter race for control of the Senate. Prediction markets Kalshi and Polymarket give Democrats about a two-thirds chance of taking the Senate and about a 90% chance to take the House. Republicans have generally held a significant fundraising advantage, which could boost their prospects in the final days of the campaign.

A small House majority could pose difficulties for House Democratic Leader Hakeem Jeffries, D-N.Y., likely the next Speaker of the House if Democrats win, due to potential holdouts from the left. A larger 10- or 15-seat majority could provide more wiggle room. Any Senate Democratic majority would likely be slim because Democrats need to net four Senate seats to control the upper chamber. A 50-50 split would mean Republicans retain control via Vice President JD Vance’s tiebreaking vote.

Key upcoming events are highlighted below, followed by in-depth discussions of the election’s potential impact on private credit and financial services, healthcare, data centers and energy, broader AI policy, tariffs and the upcoming lame-duck session.
 

Private Credit & Financial Services

Private credit, business development companies and other nonbank lenders could face more scrutiny if Democrats obtain the subpoena and agenda-setting powers that come with control of either the House Financial Services Committee or the Senate Banking Committee. Such scrutiny could result in more headlines concerning the risks of direct lending.

Sen. Elizabeth Warren, D-Mass., would likely chair the Senate Banking Committee if Democrats flip the upper chamber. Over the last two years, Warren has called for banking regulators and the interagency Financial Stability Oversight Council (FSOC) to conduct a private credit stress test, probed insurers’ ties to direct lenders, taken notice of the surge in redemption requests at BDCs, criticized the Trump administration’s efforts to increase retail access to the asset class via 401(k) accounts, warned of financial stability risks from an “AI debt bubble” and probed private equity investments in data centers.

While leading Democrats on the House Financial Services Committee have been less vocal in criticizing direct lenders than Warren, some members of the panel reportedly sent inquiries to Apollo, Ares, BlackRock, Blackstone, Blue Owl, Carlyle and KKR following the BDC stress and redemption gating earlier this year. Areas of interest reportedly included leverage, fees, risk management, sales practices, payment-in-kind (PIK) interest and economic vulnerabilities.

Senior Democrats on the House Financial Services Committee sponsored legislation that overwhelmingly passed the House to restrict FSOC’s ability to designate nonbanks, such as large private credit funds and other large alternative asset managers, as systemically important and subject to Fed oversight. Warren, by contrast, opposes the Trump administration’s proposed guidance to box in FSOC’s designation authority.

Like Warren, House Financial Services Committee Ranking Member Rep. Maxine Waters, D-Calif., also urged the Department of Labor to withdraw its proposal to expand 401(k) access to private equity, private credit and other alternative investments.

Rulemaking and enforcement power will remain with Trump-appointed regulators at the Treasury Department, the Securities and Exchange Commission, the Federal Reserve and FSOC, who have been monitoring risks from private credit. Private credit is likely to be only a small part of Democrats’ wider oversight agenda that focuses on actions by the Trump administration and more electorally salient affordability issues.

Warren and other progressives in 2026 reintroduced the Stop Wall Street Looting Act, which would make private equity firms responsible for the debts and other liabilities of their portfolio companies. Warren first introduced the bill in 2019 and it remains unlikely to garner sufficient support, but she could hold hearings on private equity practices or even hold a markup.

Some House Democrats are reportedly considering challenging Waters for the committee gavel, but the 88-year old appears to have the backing of most of her colleagues.

Democrats could also pursue oversight of banking regulators’ actions to ease capital limits, stress tests, supervision and bank merger reviews as well as rollbacks by the SEC. Democratic lawmakers could emphasize Fed independence amid the White House’s recently revamped inquiry into Fed Gov. Lisa Cook.

They could examine the Trump administration’s dismantling of the Consumer Financial Protection Bureau. Warren has focused on consumer protection issues in recent years, including probes into buy-now-pay-later lenders, auto lenders and bank overdraft fees. In January, Trump and Warren expressed interest in capping credit card interest rates but the effort fizzled out.

Democrats could conduct oversight hearings and investigations into the cryptocurrency industry. A Democratic House or Senate might demand major changes to the digital asset market structure legislation that stalled in September, although such changes might not garner support from the president and Republicans. They could also conduct oversight hearings of the Commodity Futures Trading Commission’s and the SEC’s proposals to regulate the industry.

Prediction markets could be the focus of Democratic inquiries. The CFTC has taken the lead on implementing federal rules for prediction markets. Dozens of states have sued prediction markets and the CFTC over whether the market contracts qualify as federally regulated swaps or whether they should be subject to state-level gambling laws. The state of New Jersey recently asked the U.S. Supreme Court to review the issue.

Warren has reportedly expressed interest in using her perch on the Senate Banking Committee to build bipartisan support to impose export controls on the sale of advanced AI chips to China. Waters has called for briefings on bank cybersecurity risks from AI.

Healthcare

Jeffries said a “top priority” for Democrats is the reversal of recent healthcare cuts. Democrats would likely seek to restore the expired Affordable Care Act, or ACA, enhanced tax credits and undo cuts to Medicaid coverage enacted under the One Big Beautiful Bill Act, or OBBBA. They could try to include these provisions in must-pass spending bills where they have negotiating leverage.

House Energy and Commerce Committee Ranking Member Rep. Frank Pallone, D-N.J., denounced the refusal of Republicans to extend the ACA tax credits. In June, Jeffries selected Reps. Alexandria Ocasio-Cortez, D-N.Y., and Terri Sewell, D-Ala., to lead a healthcare cost working group, which published an 84-page proposal that prioritizes the restoration of ACA premium tax credits.

The working group proposal builds on existing programs to expand coverage and lower costs. It also proposed a multitrack path to universal coverage that uses Medicare, the ACA Marketplace and options outside the marketplace.

On July 30, Sen. Ron Wyden, D-Ore., the top Democrat on the Senate Finance Committee, released a report advocating for the reversal of recent ACA cuts and the improvement of marketplace coverage by “restoring enhanced tax credits, simplifying eligibility and enrollment determinations, and improving affordability determinations.”

A Senate flip would likely elevate Sen. Bernie Sanders, I-Vt., to chair of the Health, Education, Labor and Pensions Committee. Sanders, a long-time proponent of “Medicare for All,” said he would use the position to push an “extremely bold” agenda. While any legislation would face opposition from other lawmakers and a Trump veto, it could guide the policy discussions into the 2028 Democratic primary.

Although Democrats could use funding fights to reverse some of the changes to the ACA and Medicaid, oversight is Democrats’ most immediate tool. Senate Democrats are already probing contractors selected to implement the OBBBA Medicaid work requirements.

Health and Human Services Secretary Robert F. Kennedy Jr. would likely face hearings under a Democratic majority. In 2025, Pallone moved to subpoena Kennedy to testify over vaccine and disease-outbreak concerns, but Republicans blocked the effort.

Democratic members are skeptical of the Trump administration’s deals with pharmaceutical manufacturers. This includes TrumpRx, which offers drugs priced in line with the lowest paid by other developed nations, and the Centers for Medicare & Medicaid Services’ GLOBE model, which requires manufacturers to pay rebates when Part B prices exceed a foreign-based benchmark. Companies that signed voluntary GENEROUS Model agreements are exempt and instead pay supplemental Medicaid rebates to states to align with lower foreign prices.

Democrats with subpoena power could escalate oversight of these deals. After TrumpRx was announced, Wyden, Pallone, and Ways and Means Committee Ranking Member Rep. Richard Neal, D-Mass., sent letters to 15 pharmaceutical companies demanding transparency about their agreements. The companies declined to provide the information to the minority-party request. The three lawmakers also sought information from HHS on the GLOBE model.

Democrats could relaunch their efforts to investigate private equity’s role in the healthcare system, as they did when they controlled the Senate in 2023 and 2024. Earlier this year, Warren and some other Democrats introduced legislation to “root out” private equity abuse in healthcare following the Steward and Genesis HealthCare bankruptcies. Although legislation targeting private equity’s role in healthcare is unlikely to be implemented, hearings and investigations could generate negative headlines similar to 2024.

Legislators on both sides have criticized insurers for the rise in premiums and prior authorization denials, although Democrats blamed the ACA cuts for exacerbating this trend. Sanders and Wyden have called for hearings with insurer CEOs to address a “fundamentally broken healthcare system.” House Republicans convened similar hearings earlier this year.

Lawmakers could also consider proposals to revise the No Surprises Act’s, or NSA’s, independent dispute resolution, or IDR, process that resolves provider-insurer payment disputes over certain out-of-network care but has been bogged down by a massive claims backlog. The federal government in June announced a final rule amending the process, but lawmakers on both sides of the aisle have pushed for changes.

Pallone introduced legislation aimed at fixing the NSA’s “broken arbitration process” and blamed private equity-backed providers for “gaming the system.” Meanwhile, Rep. Greg Murphy, R-N.C., introduced competing legislation, although he argues that insurance companies are responsible for the IDR gridlocks. Murphy said that the Ways and Means Committee could pursue NSA reforms during the lame-duck session. It is unclear if, or on what terms, the White House would agree to modify the NSA.

The 340B drug pricing program, which allows eligible providers to purchase certain outpatient drugs at discounted prices, has also been a source of bipartisan scrutiny. The Trump administration has pursued changes, including moving to post-sale rebates from upfront discounts and lowering reimbursement rates for 340B-acquired drugs. Members of both parties have expressed concerns regarding 340B spending and transparency. A group of Republican and Democratic members on July 6 introduced legislation that would tighten eligibility rules for 340B patients and implement stricter standards.

A Democratic majority would provide the party with influence over must-pass spending bills, which Democrats have viewed as their best opening to achieve policy priorities. Last fall’s 43-day shutdown did not yield the healthcare-related concessions that Jeffries had described as a red line, and Democratic senators acknowledged that leverage fades once a full-year spending bill passes.

It is possible that healthcare reemerges as a funding issue as soon as the lame-duck period, given that government funding expires Dec. 11.

Data Centers, Energy & Permitting

Backlash to data center development has become a bipartisan issue at the state and federal levels. Politicians from both parties have called for slowing down or even halting data center development on the campaign trail.

Federal lawmakers’ most advanced effort to shield consumers from data center-driven electricity costs is the Ratepayer Protection Act, which the House passed overwhelmingly in September. The bill would create a federal standard requiring data centers that draw 100 megawatts or more to pay for the new generation, transmission and other infrastructure built to serve them. The bill would direct state utility regulators to “consider” adopting the standard.

The measure stalled after Senate Minority Leader Chuck Schumer, D-N.Y., said the nonbinding provisions made it “toothless.” Senate Democrats were also likely reluctant to give the bill’s Senate sponsor Sen. Jon Husted, R-Ohio, a political win on data centers given his tough election race against former Sen. Sherrod Brown, a data center critic.

The Ratepayer Protection Act seeks to build on the Trump administration’s voluntary approach. In March, Amazon, Google, Meta, Microsoft, OpenAI, Oracle and xAI signed the president’s Ratepayer Protection Pledge, committing to pay for the generation and grid infrastructure their data centers require. The White House expanded the pledge in July to more than 200 utilities, developers, cooperatives and states.

Permitting reform is also a potential item for the lame-duck or next Congress. On Sept. 30, senators from both parties announced a permitting reform package, the Bipartisan American Affordability and Jobs Act, that could help expedite data center siting and construction. The bill mandates one-year deadlines for federal environmental assessments and two years for environmental impact statements, and simplifies interstate transmission line siting processes.

The proposal also contains a binding 20-megawatt cost recovery floor for data centers, which is stricter than the Ratepayer Protection Act. The legislation would empower FERC to review major data center-related projects alongside state regulators and to require data centers to pay their associated transmission costs. The Senate could vote on the bill the week after the election.

Momentum for the bipartisan agreement picked up after the administration reportedly assured Democrats it would provide better treatment for wind projects. However, Democrats appear distrustful of the Trump administration’s promise to give favorable treatment to clean energy projects, which have faced challenges and rescinded approvals from the administration.

It remains unclear how House leaders view the Senate bill. House Republicans in December 2025 passed their own permitting bill largely along party lines. A strong bipartisan vote on the Senate bill and pressure from the Trump administration could prompt House leaders to go along with the Senate proposal.

If Democrats flip one or both chambers, they could find it advantageous to wait until the next Congress to move on a permitting deal, when they would have more leverage to shape the bill’s text.

Separately, Pallone, who is in line to chair the Energy and Commerce Committee, has said that “fixing this data center crisis is a top priority.” Pallone plans to propose legislation implementing federal guardrails, including pollution rules, siting standards and ratepayer protections. He also said he might propose a data center moratorium, but House Democratic leadership does not appear to support such a step.

Aggressive data center regulation is unlikely to become law under a divided federal government, so oversight is the more likely outlet for Democrats.

Debates over data centers have featured prominently in gubernatorial races, where positions do not break cleanly along party lines. At least 16 states have at least one candidate calling for a temporary moratorium on development.

In August, Texas Republican Gov. Greg Abbott ordered state regulators to halt approvals of new data center grid connections pending an audit. His Democratic challenger, Gina Hinojosa, has called on the governor to sign an emergency executive order to pause all data center construction until the state Legislature can discuss the matter. The Electric Reliability Council of Texas, or ERCOT, plans to release two crucial reports in December.

In Pennsylvania, Democratic Gov. Josh Shapiro released a set of data center development guardrails, while his Republican opponent Stacy Garrity called for a temporary pause on development. Georgia gubernatorial candidates have also clashed over data center development, with Republican Rick Jackson opposing Democrat Keisha Lance Bottoms’ proposed temporary statewide pause.

Broader AI Policy

Comprehensive federal AI legislation is unlikely to become law in the near term, given that Democrats’ interventionist proposals are likely to clash with Trump’s hands-off approach. The midterms are more likely to reshape the politics of AI than to produce new laws, and proposals in the next Congress could signal the direction of the AI policy debate in the run-up to 2028.

The White House and its allies have pushed for a single national standard that would pre-empt states from implementing AI legislation. However, the effort was opposed by congressional Democrats and some Republicans concerned about states’ rights and child safety.

Democrats have largely opposed attempts to broadly preempt state regulation, and some have introduced legislation to repeal the Trump administration’s preemption order.

The administration has relied on voluntary commitments to address safety concerns; Trump has resisted tougher regulation over fears it could hamper competition with China. Trump in June signed an executive order establishing a voluntary process for frontier AI developers to grant the government early access to their most advanced models, and in September Trump announced a voluntary accord with the largest AI companies for corporate self-regulation.

Shortly afterwards, Trump announced a “Super Intelligence Force,” which will have 120 days to report on risks posed by AI. Axios reported on Oct. 9 that the task force began requiring AI companies to immediately disclose and address security incidents.

Lawmakers are circulating alternative frameworks, and more proposals are likely over the next two years. The White House released legislative recommendations in March, and Sen. Marsha Blackburn, R-Tenn., disseminated a draft that would translate them into statute.

In June, a group of bipartisan lawmakers led by Reps. Jay Obernolte, R-Calif., and Lori Trahan, D-Mass., floated a proposal to freeze state laws on AI model development for three years to allow lawmakers in Washington to develop a federal framework. The pair also introduced a frontier model safety bill in July. Trahan in October also released a discussion draft of an AI liability framework that would hold developers liable for misconduct and create a federal cause of action.

A proposal from Sens. Dick Durbin, D-Ill., and Josh Hawley, R-Mo., would classify AI systems as products subject to product liability claims. Ranking member of the Senate Commerce Committee Sen. Maria Cantwell, D-Wash., recently outlined a comprehensive AI governance framework for federal safety standards, third-party audits and disclosure requirements for risks and incidents.

A Democratic House would likely put AI at the center of its oversight agenda, examining safety, workforce impacts and the use of AI in pricing and other business practices. Top House Democrats have already begun scrutinizing leading AI companies.

Pallone, Rep. Zoe Lofgren, D-Calif., and Rep. Jamie Raskin, D-Md., ranking members of the House committees with jurisdiction over artificial intelligence, sent letters to OpenAI, Anthropic, Google DeepMind, Meta and SpaceX. The representatives asserted they were “disturbed” by reports of AI acting unsafely, and requested information on past safety incidents and any safeguards. If Democrats win the House, these lawmakers would likely chair key AI committees and sharpen their investigations into these companies.

More broadly, Democrats are expected to closely scrutinize Silicon Valley’s ties and agreements reached with the Trump administration over the last two years.

Tariffs

Democrats, including Jeffries, have called for reining in the president’s delegated authorities over tariffs, although there would need to be significant Republican defections for veto-proof supermajorities in both chambers. The courts could continue to provide a more meaningful check.

After the Supreme Court struck down the International Emergency Economic Powers Act, or IEEPA, tariffs, the president relied on section 122 of the Trade Act of 1974 to impose a stopgap 10% global tariff before rolling out 10%-12.5% forced labor tariffs on most major trading partners under section 301 of the Trade Act of 1974. The U.S. Trade Representative is also conducting section 301 “structural excess capacity” tariff investigations on 16 of the largest U.S. trading partners as well as various country-specific section 301 investigations.

Congressional Democrats could try to pass legislation to repeal the 50% tariffs on certain Canadian goods under section 338 of the Tariff Act of 1930. An importer recently asked the U.S. Court of International Trade, or CIT, to block these tariffs. Trump recently modified the list of items subject to section 338 tariffs to help Sen. Susan Collins, R-Maine.

Democrats could try to advance similar legislation to restrict the president’s use of section 301, which the administration is increasingly relying upon. A test case, one of several challenges, on the legality of the section 301 forced labor duties is currently pending before the CIT.

Section 122, which allows an up to 15% tariff for 150 days to address balance-of-payments deficits, could also be a target for Democratic lawmakers. The CIT previously deemed Trump’s use of section 122 illegal, which is subject to an appeal at the Federal Circuit.

Trump’s section 232 national security tariffs are on stronger legal footing and have not drawn many legal challenges in Trump’s second term. Democrats in 2025 proposed legislation that would require Congress to affirmatively approve new section 232 tariffs, but Trump would likely veto it.

Democrats could spend more time conducting oversight of the Trump administration’s trade policy, tariff exemptions and favorable treatment in trade deals. They could also launch inquiries into the Trump administration’s handling of the $166 billion of IEEPA tariff refunds, which could serve as a guide for future refunds if other tariffs are voided. Earlier this year, Wyden requested information from some Wall Street firms on IEEPA refund claims trading.

Additionally, Congress would likely have a role in any renegotiation of the United States-Mexico-Canada Agreement, or USMCA, especially if it revises tariff rates or customs procedures.

While Democrats are largely opposed to the president’s tariffs, Democratic lawmakers do not hold monolithic views on import duties. For example, Sen. Bernie Sanders, I-Vt., has called for targeted tariffs to help workers, and Rep. Chris Deluzio, D-Pa., supports some tariffs to help revitalize “rust-belt” areas. Senate Finance Committee Ranking Member Ron Wyden, D-Ore., is more focused on reining in the president’s tariff powers.

Lame Duck and Debt Limit

Depending on the outcome of the election, we could see an active lame-duck period between the election and the sitting of the new Congress on Jan. 3, 2027. Regardless of the result, must-pass legislation includes funding the federal government and reauthorization of the National Defense Authorization Act, or NDAA.

The current funding for the government runs through Dec. 11, after Trump in September signed a short-term continuing resolution, or CR, for appropriations at existing levels. Before the deadline, Congress could pass a full-year spending bill or approve another short-term CR that would leave the matter for the new Congress. Democrats might be less inclined to accept a full-year package in the lame-duck session if they think they can secure better terms in January.

If talks break down, another partial government shutdown is possible. Last year’s 43-day shutdown was the result of an impasse between the Trump administration and Democrats on healthcare policy. After Democrats took the House in 2018, there was a 35-day shutdown that started during the lame-duck period amid a funding dispute with Trump regarding the border wall.

The NDAA, the defense policy bill Congress has passed annually for 65 years, could also serve as a vehicle for unrelated legislative priorities in the lame duck. The House passed its version in July while the Senate Armed Services Committee advanced its version in June. Democratic opposition to defense policy, including operations in Iran, could pose difficulties for the bill.

Additionally, as noted above, the Senate is slated to take a procedural vote on the bipartisan permitting reform bill after the elections but it remains unclear if the House will move on it.

Senate Banking Committee Chair Tim Scott, R-S.C., is reportedly planning to work on capital formation in the lame duck. The House passed a similar package in 2025.

If Democrats win the Senate, the Trump administration and Senate Republicans could seek to rush confirmations of certain presidential nominees for executive branch positions and judicial posts.

If Democrats flip one or both chambers, Republicans could also attempt to pursue a third budget reconciliation package that includes raising the debt ceiling, which is separate from government funding via appropriations. Legislation passed via the reconciliation procedure requires only a simple Senate majority. A third reconciliation bill could also include funding for defense spending priorities for the Iran war and other Republican priorities.

A Republican punt on extending the debt ceiling could set the stage for contentious negotiations between Democrats and the White House in 2027. Democrats would have more leverage in debt-limit negotiations if they control both chambers and could ask for more policy concessions.

The Bipartisan Policy Center estimates that the U.S. will likely reach the $41.1 trillion debt ceiling between late winter and early summer 2027, after Republican lawmakers last raised the debt ceiling by $5 trillion when passing the OBBBA in July 2025. The Treasury Department can take “extraordinary measures” to prolong the so-called X-date, when the agency exhausts its reserves and accounting maneuvers.