Trump Bound? Three big things to watch in the US in 2026 that will be key for markets

2026 is shaping up to be a defining year for the Trump presidency – here's three things that are likely to shape the year ahead for the administration and markets.

Tariff Ruling

The US Supreme Court is set to rule early in the year on the administration’s use of the International Emergency Economic Powers Act (IEEPA) for tariffs, which could hit about 70% of tariff revenue. It’s thought the Supreme Court is leaning towards rejecting Trump’s use of the act to impose tariffs, the central plank of his economic policy. “Evil, American hating Forces are fighting us at the United States Supreme Court,” he posted recently. It didn’t sound like it's going his way.

If the justices overturn the tariffs we would expect severe disruption in the event of repayments, delays and ongoing uncertainty about individual country/sector tariffs. The administration would need to swing behind more targeted tariffs that could create additional uncertainty around trade policy and increase volatility.

Refundswould be a positive for some companies, such as Costco, which have filed lawsuits to ensure they get refunds from the government if IEEPA tariffs are thrown out by the Supreme Court.

But firms should make no mistake, tariffs are not going away. Trump has other levers to pull. Sections 301 and 232 can be used more prominently to impose sectoral tariffs relating to unfair trade practices and national security issues. The drawback to these is that they require lengthy investigations to be carried out first, which can take months.

Other tools are as yet unused. Section 122, for example,doesn’t require lengthy investigations and could be applied almost immediately. But it has a 15% cap on the level of tariffs and a 150-day time limit, which can be extended with Congressional approval – which could be tricky after the Mid-term elections in November. More on that to follow. Another is Section 338, which allows for tariffs of up to 50% based on discrimination against US commerce, but it’s not been tested recently.

New Fed Chair

President Trump has been vocally at odds with the Federal Reserve. In November he described current chair Jay Powell as a “clown” with “some real mental problems”, adding “I’d love to fire his ass”. The tension between the White House and the Fed is now a live macro issue, not just political theatre.

In 2026 a new Fed chair will take over. The market expectation is that Trump will nominate a loyalist willing to ease policy aggressively and support a “run it hot” economy – cutting rates to boost growth, asset prices and confidence heading into the later years of the presidency. That is the political calculus.

The economic reality is more complicated. Any incoming chair will face an economy still growing at a decent clip, with inflation proving sticky and above the Fed’s formal target. Cutting rates into that backdrop risks reigniting price pressures, weakening the dollar sharply and unsettling bond markets. The scope for aggressive easing may therefore be far more limited than investors initially assume.

This puts Fed independence firmly in the spotlight. If the new chair is perceived as overtly political, markets could demand a higher risk premium on US assets, particularly Treasuries, pushing yields higher even as the Fed attempts to ease. The irony for the administration is that overt pressure on the Fed could end up tightening financial conditions rather than loosening them.

For investors, this is not just about the path of rates but about credibility. The balance between inflation control and political interference will be one of the most important drivers of volatility across FX, bonds and equities in 2026.

Midterm Elections

US midterm elections in November will create extra headline risk. They will determine how much freedom Trump has to push through his economic agenda in the second half of his term – or whether legislative gridlock returns. 

If Republicans retain control of Congress, the administration would have greater scope to extend tax cuts, approve tariff extensions under time-limited measures such as Section 122, and support further fiscal stimulus. That would reinforce the reflationary narrative: stronger growth, wider deficits and upward pressure on bond yields.

If, however, Democrats regain one or both chambers, the dynamic changes materially. Congressional approval for extending emergency tariff powers becomes far less certain, fiscal expansion becomes harder to pass, and the threat of investigations, hearings and legal challenges rises. Markets would need to price in slower policy momentum and a higher risk of abrupt reversals.

For trade policy in particular, the midterms matter. Some of Trump’s fastest tariff tools require Congressional consent beyond fixed time limits. A hostile Congress could constrain those options, forcing the administration back toward slower, more procedural trade actions – reducing immediacy but extending uncertainty.

The broader risk for markets is paralysis. A divided Washington tends to produce delayed budgets, shutdown threats and headline-driven volatility. While gridlock can sometimes be equity-friendly, the combination of heavy debt issuance, sensitive bond markets and an already stretched policy framework means 2026’s midterms carry more market risk than usual.