New Congress Meets Rising Inflation and Debt
With Democrats controlling both chambers and inflation at 3.7%, the new government faces immediate pressure to lower costs while managing a $2 trillion annual deficit.
By Aiko Nakamura ·
Voters in Tuesday’s midterms signaled a clear demand for economic relief, placing the burden of fixing high prices on the new Democratic majority and President Donald Trump. The campaign message was simple: repair the damage inflation has done to household budgets.
The economic backdrop remains tense. The annual consumer price index has climbed to 3.7%, a level driven partly by Trump’s tariffs and the war against Iran that began in February. Friday’s jobs report showed employers adding 165,000 positions, and the unemployment rate fell to 4.1%. Despite these figures, the cost of living continues to erode middle-class savings.
President Trump has maintained that the economy is booming, even after his party lost control of Congress. He told reporters last week, “I’ll get along, probably, with the Democrats, unless they want to be destructive.” In a text message to supporters following the jobs report, he added, “Democrats may control Congress, but I will NEVER stop fighting for you, and I will VETO anything that hurts America.”
The shift in power gives the Federal Reserve more independence. Douglas Holtz-Eakin, an economist and president of the American Action Forum, noted that the Democratic Senate could block Trump from filling open Fed board seats. This removal of political pressure might allow Fed Chair Kevin Warsh to aggressively target the 2% inflation goal, a target the central bank has missed for nearly six years.
The federal government’s financial health poses a deeper structural challenge. The U.S. government borrows approximately $2 trillion annually, with interest payments on the national debt now exceeding $1 trillion per year. That amount is higher than the entire military budget. Treasury Secretary Scott Bessent and White House budget director Russell Vought are drafting a “fiscal consolidation plan” to address the gap, but neither party campaigned on spending cuts.
Technology offers a growth engine, yet it creates a vulnerability. Harvard economist Jason Furman describes the artificial intelligence sector as the most obvious investment boom since the railroad era. His data shows an 80.6% increase in data center construction over the past year. However, a majority of Americans in an AP Voter Poll believe AI does more harm than good for the economy. Trump has favored a hands-off regulatory approach, but the stock market sold off last week on fears that Democrats might impose guardrails.
The most urgent long-term problem is Social Security. The program is projected to run out of money to pay full benefits by the end of 2032. Sen. Elizabeth Warren, D-Mass., says the checks sent to seniors will drop by nearly a quarter if the system is not fixed. She has begun working with Sen. Bernie Moreno, R-Ohio, on a bipartisan bill to lift the payroll tax cap. Warren noted that the need for action is immediate, stating, “Congress is doing nothing.”
