With less than a month to go, the US midterm elections are looming large. The balance appears to be shifting increasingly in the Democrats’ favour, and they could very well emerge with control of both the House of Representatives and the Senate. Against this backdrop, President Trump’s announcement of diesel imports from Russia seems to be driven more by political than economic considerations. The potential volumes involved are little more than a drop in the ocean, both in terms of US consumption and storage, and are therefore unlikely to move the needle ahead of the midterms or in energy markets. 

Looking beyond the midterms, the trajectory of interest rates is set to remain one of the most closely watched topics in financial markets. Amid signs of a cooling labour market and our expectation of easing energy prices, we still hold the view that the US Federal Reserve is in a position to tighten policy less aggressively than is currently priced into money markets. At the same time, it is worth stressing that the principal growth driver of the US economy, namely investments in artificial intelligence (AI) infrastructure, does not appear to be particularly sensitive to interest rates. This remains true despite hyperscalers’ growing reliance on the bond market for funding. 

1. Will the US midterm elections change the investment outlook?

Political attention is firmly focused on the US midterm elections, with prediction markets increasingly favouring a Democratic victory in the House of Representatives and suggesting a strong possibility of Democratic control of the Senate as well.

For investors, the key implication is the potential for a divided government. Historically, markets have often viewed political gridlock positively because it reduces the likelihood of major policy changes. A more balanced political landscape could help support both equities and government bonds by narrowing the range of possible policy outcomes. However, longer-term challenges, including future debt ceiling negotiations, remain on the horizon.

2. Why is Trump’s diesel import announcement attracting attention?

President Trump's proposal to import diesel from Russia appears to have greater political significance than economic impact.

The volumes involved are relatively small when compared with overall US fuel consumption and storage levels, suggesting that they are unlikely to materially influence energy markets or reduce fuel prices ahead of the election. While the announcement may be designed to address voter concerns around energy affordability, any economic benefits are likely to be limited. The move could, however, create diplomatic tension internationally, reinforcing the increasingly close connection between politics and energy policy.

3. Is inflation still a major concern for the Federal Reserve?

Inflation in the US continues to be driven largely by energy and fuel prices. Consequently, the sharp rise in petrol and diesel prices in September is likely to have pushed the inflation rate up once again. However, the underlying trend remains far more moderate than headline figures suggest.

Several indicators point to a cooling labour market, including fewer job openings and more restrained wage growth expectations. Importantly, inflation expectations remain relatively well anchored, reducing the risk that temporary energy-driven price increases spread more broadly across the economy.

As a result, the Federal Reserve may not need to tighten monetary policy as aggressively as markets currently anticipate. The most likely scenario remains an unchanged policy rate in October, followed by one final rate increase in December before inflation gradually moves closer to the Fed's target over the coming years.

4. Can AI continue to drive growth if interest rates stay high?

Artificial intelligence remains the dominant structural growth story in the US economy.

Investment in AI infrastructure continues at an extraordinary pace, supported by the world's largest technology companies. What makes this trend particularly significant is that AI spending appears relatively insensitive to interest rates. Even as borrowing costs remain elevated and hyperscale technology companies increasingly tap bond markets for financing, investment plans have remained robust.

This resilience helps explain why AI-related companies continue to command strong earnings expectations and why the sector remains at the centre of investor attention. During the upcoming earnings season, management guidance from technology leaders and companies throughout the AI value chain will likely be scrutinised for signs that the investment cycle remains intact.

5. What should investors watch during earnings season?

While AI will dominate many headlines, earnings season should provide a broader read on the health of the US economy.

Outside the technology sector, energy companies are expected to deliver some of the strongest earnings growth, benefiting from higher commodity prices and resilient demand. By contrast, consumer-facing sectors and healthcare may continue to face pressure as spending patterns normalise and margins remain challenged.

Investors will be watching not only whether companies meet expectations, but also how executives describe demand trends, hiring plans, investment intentions and their outlook for 2027. These signals could prove just as important as headline earnings figures in shaping market sentiment for the months ahead.

The bottom line

Despite the noise surrounding the US midterm elections and energy policy, markets remain focused on three core themes: the path of inflation, the direction of interest rates, and the durability of the AI investment cycle. Political developments may drive short-term volatility, but moderating inflation and continued AI-led capital spending are likely to remain the primary forces shaping the investment landscape into 2027.