THE RESULT of America’s midterm elections occurred under two sets of conflicting facts: by many conventional measures the economy is performing above average, yet Americans remain deeply dissatisfied with their economic circumstances, displaying attitudes in surveys more typical of those during a recession.

And America is far from being in that predicament. Real GDP grew at a healthy 3.4% annual rate in the third quarter, up from 2.2% in the second. Unemployment and layoffs are low and the roaring expansion in investment, partly thanks to an AI sector free from excessive regulation, offers reasons for optimism about future productivity. Yet the University of Michigan’s consumer-sentiment index stood at just 48.0 in October, down from 53.6 a year earlier. Its index of current economic conditions was even lower, at 46.7. Such readings have in the past been associated with severe economic stress.

The election results may be explained in part by a continued—and generally faster-than-expected—rise in the prices of food, gasoline, housing and much else. Many households with rising nominal wages have endured real wage declines this year.

Democrats naturally took full advantage of public anxiety over affordability during the election campaign. They omitted to mention that much of the rise in prices happened on Joe Biden’s watch. The unadjusted CPI-U consumer-price index jumped by 21.4% during his four years in office, compared with 6.1% during the first 20 months of Donald Trump’s second term.

The economic statistics are not wrong, and households are not imagining their bills. They are looking at different dimensions of economic activity and prosperity. Until real wage growth makes the cumulative inflation shock less painful, Americans may continue to feel economically insecure even as the aggregate economy expands. Ordinary voters do not experience the economy as a quarterly GDP rate or a stock index. They experience it through how much their paycheques can buy and, as this election illustrated, that purchasing power is not always synchronised with the aggregate statistics.

Voters mostly blame the Iran war and tariffs for persistent inflation. The irony of this election is that these are the two policies the new Democratic Congress will find hardest to reverse.

Start with the Iran war. The president began it in February without congressional authorisation. A resolution to curb his war powers would need support from two-thirds of both chambers to survive his veto, and Democrats are well short of that. And much as the new Congress may wish to choke off funding for what it sees as military adventurism, few members would vote to defund troops already in the field.

It is a similar story with tariffs. After an adverse ruling by the Supreme Court in February, the administration reissued the duties under another statute, limited to 150 days unless Congress extends the term. The administration then moved them to a more permanent “Section 301” footing. Democrats can ask for, or trade, exemptions for particular countries or goods, but any broader reversal would be vetoed by the president.

Other parts of the White House agenda will survive the election as well. Chief among them is Mr Trump’s welcome deregulatory programme. An executive order signed in January 2025 told agencies to retire ten rules for every new one. Its impact has been impressive: in the 2025 fiscal year, the White House regulatory office counted 646 deregulatory actions against five new rules, with claimed savings of $212bn.

Much of the deregulation drive is baked in for this Congress. It is true that federal-agency rules issued towards the very end of any given Congress can be overturned by the subsequent one using the Congressional Review Act “lookback” mechanism. However, the administration will probably aim to finish its major rules through notice-and-comment rulemaking well before 2028, meaning that fewer of them will be reversible.

The election’s fiscal impact is less clear. If recent history is a guide, the new divided government will agree to spend more, not less. Since 2013, whenever a president has lacked full control of Congress or needed opposition votes in the Senate, the budget deal that followed has raised spending on both parties’ priorities at once. Republicans got more for defence, Democrats more for domestic programmes. In a classic logroll, each side voted for the other’s spending to secure its own.

The 2013 and 2015 deals kept “parity”, with equal increases for defence and non-defence spending. In 2018 Senate Republicans counted it a win that defence rose more than domestic spending, but they still conceded $131bn more for domestic programmes over two years.

This recent history cuts against a long-held view that divided government acts as a brake on spending. For instance, William Niskanen of the Cato Institute, a think-tank, found that, from Dwight Eisenhower to Bill Clinton, real federal spending grew more slowly when the two parties split control of Washington.

The horse-trading of the past decade and a half points in a different direction. Each of the deals came under split control, or when the minority’s Senate votes were needed, and each raised spending above the limits Congress had set for itself. On the annual budget, in short, divided governments have become a way for each side to buy the other’s agreement with additional spending. Added to which, this is a White House that likes to make deals. Only an optimist could expect growth in government debt, and the associated risk of higher interest rates, to be lessened by the new gridlock.■ Tomas J. Philipson was acting chairman of the Council of Economic Advisers during President Donald Trump’s first term.