The global economy is entering a period of heightened volatility following the US midterm elections, where Democrats secured control of both the House and Senate. This political shift, combined with resilient consumer spending and fluctuating energy prices, is creating a new economic environment for markets in the United States and Canada.

How is the US economy performing?

Despite concerns regarding high prices, the American consumer appears stronger than many analysts expected. While a "K-shaped" economy typically implies one group thriving while another struggles, recent data suggests spending growth of 4% to 5% annually across all income groups since 2024.

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However, this strength presents a challenge for the Federal Reserve. Because consumer spending remains high, inflation has proven difficult to lower. Core PCE inflation, a key metric for the Fed, has remained around 3% for three years, well above the 2% target.

What are the implications for the new economic normal?

In North America, the political landscape and technological sectors are facing significant uncertainty:

  • Artificial Intelligence: Markets view the Democratic sweep as a potential risk for the AI trade due to possible increased regulatory oversight.
  • Trade Relations: While a Democratic Congress may challenge existing US tariffs on Canadian goods, such as those on steel and lumber, much of the current trade policy remains under executive authority.
  • Energy Volatility: Oil prices have shown instability as traders weigh Middle East peace talks against the risk of supply disruptions, with Brent crude trading near $104 per barrel.

Why does this matter for North Americans?

For Canadians, the US election results signal potential shifts in how industries like banking, healthcare, and AI are overseen. Furthermore, the ongoing tension regarding US tariffs and the geopolitical situation in Iran continues to influence domestic prices and trade stability. Investors are closely monitoring whether the current tech boom is sustainable or if regulatory changes will trigger a correction.