WASHINGTON – Voters delivered a clear election-year warning to President Donald Trump and the newly empowered Democratic majority in Congress: They expect Washington to address the damage inflation has inflicted on household finances.
Trump had campaigned on warnings that a Democratic midterm victory could unleash a 1929-style economic collapse, while insisting the economy was thriving. After his party lost Tuesday’s vote, he said he was prepared to work with Democrats in the House and Senate — a notable shift from his limited record of cooperation with the opposition.
“I’ll get along, probably, with the Democrats, unless they want to be destructive,” Trump told reporters last week.
A strong jobs report released Friday showed employers added 165,000 positions and the unemployment rate fell to 4.1%. Trump responded defiantly. “Democrats may control Congress, but I will NEVER stop fighting for you, and I will VETO anything that hurts America,” he said in a message to supporters.
Democrats are preparing to challenge Trump’s authority, with early battles over government spending likely. Lawmakers will also have to confront persistent budget deficits, tariffs, artificial intelligence and difficult decisions involving Social Security, whose trust funds could face a shortfall within six years.
Yet the political danger extends beyond Washington’s policy fights. If prices continue to rise and middle-class families struggle to afford everyday life, both parties risk alienating voters before the next election.
“Until inflation and interest rates are under control, the likelihood of change elections is going to be high on an ongoing basis,” said Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget.
Americans are demanding relief from high prices
Trump’s tariffs and the war against Iran, which he launched in February, helped push annual consumer price inflation to 3.7%. The president also pressured the independent Federal Reserve to cut its benchmark interest rate, a move that could have made inflation harder to contain.
A divided government, with a Republican White House and Democratic-controlled Congress, could give the Fed greater independence as it works to bring inflation back to its 2% target — a level it has missed for nearly six years.
“I think that one of the surprise winners Tuesday was the Fed,” said Douglas Holtz-Eakin, an economist and president of the center-right American Action Forum.
The Democratic Senate could prevent Trump from filling possible vacancies on the Federal Reserve’s board, Holtz-Eakin said. That could eliminate “Trump’s incentives to meddle with the Fed” and allow Fed Chair Kevin Warsh “to follow his instincts and aggressively reduce inflation.”
Trump has argued that oil, gasoline and diesel prices will plunge once the war in Iran ends. However, he has offered no clear timeline or explanation for how the conflict would conclude.
John Cochrane, an economist at Stanford University’s Hoover Institution, said the Fed’s inflation fight would be easier if the federal government also brought down its budget deficits.
“It takes monetary and fiscal restraint,” he said.
Washington continues to borrow roughly $2 trillion each year
The nation’s debt burden continues to grow as tax revenue fails to keep pace with spending on Medicare, Medicaid, Social Security and other programs. Annual interest payments on the national debt now exceed $1 trillion — more than the government spends on the military. The outlook could worsen as investors demand higher interest rates on federal debt than they did a year ago.
Neither the White House nor congressional Democrats campaigned on cutting spending. Trump is seeking another $500 billion a year for defense, while some Democratic candidates have called for restoring Affordable Care Act subsidies that expired during Trump’s tenure.
Since August, Treasury Secretary Scott Bessent has repeatedly said the administration would unveil a plan to reduce the approximately $2 trillion annual deficit. Bessent is working with White House budget director Russell Vought on a package they are calling a “fiscal consolidation plan,” which is expected after the election.
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Goldwein said narrowing the deficit would probably require a mix of tax increases and spending reductions. He argued that Medicare could offer one of the most practical opportunities, especially through changes that lower costs for both the government and beneficiaries.
“It’s not rocket science,” he said. “The most important thing you can do is reduce healthcare costs and find policies that lower the costs of Medicare, which will reduce deficits and interest rates.”
AI could accelerate growth, but Americans remain wary
For Harvard University economist Jason Furman, artificial intelligence ranks among the most consequential economic issues facing the United States.
“It’s the most screamingly obvious investment boom this country has ever had, or, possibly, second to railroads” in the late 19th century, Furman said.
Furman has used AI to create Econvitals, an economic analysis tool that reproduces some of the work he performed as chairman of the White House Council of Economic Advisers under Democratic President Barack Obama.
On Tuesday, Econvitals analyzed construction spending and found that investment in data centers had climbed 80.6% over the previous year. Spending on homes, schools, factories and offices, meanwhile, had declined.
Stocks fell last week as investors worried that Democrats could slow data-center construction and impose new safeguards on AI. Still, the U.S. economy depends on the technology continuing to generate growth in the years ahead.
Trump has strongly promoted the industry and taken a light-touch approach to regulation, arguing that existing laws and voluntary agreements with technology companies are sufficient. He has dismissed concerns about job losses and widespread cyberattacks. But a majority of respondents in The AP Voter Poll — a nationwide survey conducted across all 50 states — said AI is doing more harm than good to the economy.
That creates a difficult trade-off. AI is helping drive economic demand and support the stock market, but any slowdown could reduce consumer spending, weaken growth and leave more Americans feeling financially strained.
“Every time you have a single strength in an economy you are also having a big vulnerability,” Furman said.
Social Security faces an urgent funding crisis
Senators elected to six-year terms last week will confront a politically charged task: working with Trump’s successor to preserve Social Security. The program is projected to lose the ability to pay full benefits by the end of 2032.
Potential solutions include eliminating the cap on payroll taxes and raising the retirement age. Any major changes, however, would probably require bipartisan support in the Senate. Social Security revisions cannot pass through the party-line reconciliation process.
Sen. Elizabeth Warren, D-Mass., said she saw a possible path forward earlier this year after overhearing Sen. Bernie Moreno, R-Ohio, discuss lifting the payroll-tax cap. “I reached out to him in a matter of days,” Warren said in an interview this summer. The senators later announced a plan that remains under development as legislation.
Warren, who worked with Republicans this year on legislation to encourage home construction, said other bipartisan initiatives had stalled because GOP lawmakers feared opposing Trump.
Social Security, she said, cannot wait. Experts estimate that “the checks that go out to seniors will drop by nearly a quarter” after 2032.
“Think what that means, literally, to millions and millions of Americans, who depend on those Social Security checks, or who have parents who depend on them. And Congress is doing nothing,” she said.
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