The Democrats’ landslide victory in the U.S. midterms could curb interest rate hikes worldwide in 2027, although oil prices, U.S. growth and fiscal policy will remain decisive. Brent crude fell 8.7% after Democrats won both the House and Senate, before rebounding as investors weighed the possibility of a resolution to the U.S.-Israeli war with Iran. Money markets now price in a slightly greater chance of monetary easing, particularly in the euro area, where rate expectations declined by 8.7 basis points over a week, compared with 4.6 basis points for the Federal Reserve. An oil price increase lasting three to six months would, according to Bank of America, push interest rates significantly higher, especially in the U.S., the U.K. and Germany. The Federal Reserve could gain more flexibility if the Democratic result brings greater fiscal discipline, while a slowdown in artificial intelligence investment combined with excessive monetary tightening could trigger a mid-cycle slowdown in 2027.
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