United States: Pre-election tail risks – Danske Bank

Danske Bank’s Danske Research Team outlines US political tail risks ahead of the 3 November midterm elections. Early voting is underway in over 40 states and prediction markets still favor Democrats retaining control of both chambers. The report focuses on Trump’s potential actions, including attempts to remove Fed Governor Cook, fiscal decisions, and use of emergency powers.

Trump actions and market risk scenarios

"With two weeks until the US midterm elections on 3 November, early voting has already opened in more than 40 states. Prediction markets are broadly unchanged since we published our Midterm update, 13 October. The prediction market Polymarket continues to see Democrats winning control of both chambers as the most likely outcome, with a 62.5% probability."

"Trump appears pressured to remove Cook before the new Senate takes office in early January, as a Democratic majority could block his Fed Board nominations even if he removed Cook later. We do not expect him to succeed before the new Congress takes office."

"Trump could try to interfere directly with voting on Election Day. Kalshi assigns a 13% probability to Trump declaring a national emergency before Election Day and a 29% probability before the end of 2026. However, such a declaration should not give the president power over elections, as these are managed at state level."

"An even more severe measure would be for Trump to invoke the Insurrection Act or declare martial law. The former could be used to deploy the military at polling stations, which Kalshi assigns a 17% probability before the end of 2026. Martial law would mean military authority replacing civilian government and would be even more extreme."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)