The midterms won’t ease borrowing costs. Here’s what CFOs should do now

Good morning. What do the U.S. midterm election results mean for finance leaders? With Democrats winning control of both chambers of Congress, companies could face greater scrutiny of issues such as AI investment and data center development. But the broader financing challenges facing finance chiefs extend beyond the shifting political landscape.

“CFOs should go into 2027 expecting sustained higher borrowing costs,” Josh Putnam, EY-Parthenon’s global and Americas corporate finance leader, told me. Financing conditions are also likely to remain volatile, regardless of which party controls Congress.

Growing deficits, strong capital demand, inflation volatility, and policy uncertainty are putting pressure on long-term rates, Putnam said, making disciplined capital allocation, debt management, and investment decisions increasingly important for finance chiefs.

His advice is to stress-test investment hurdles, evaluate debt maturities, and protect balance-sheet flexibility. Companies must understand which investments can generate returns above their cost of capital and redirect resources when they cannot, he said.

Planning for fiscal uncertainty

Political gridlock could add risk, but on its own it does not necessarily mean higher long-term borrowing costs.

A divided government “would not automatically push term premiums higher,” said Gregory Daco, EY-Parthenon’s chief economist. But repeated budget disagreements, shutdown risks, debt ceiling stress, and greater fiscal uncertainty “would reinforce upward pressure,” he said.

Daco recommends testing investments against a range of financing costs and maintaining hurdle rates that reflect a structurally higher and more volatile cost of capital.

For companies, however, the risks extend beyond long-term interest rates. Political uncertainty can also affect access to credit and the cost of short-term financing.

“Markets respond to uncertainty by charging more, whether the risk originates in Washington, D.C., or on Wall Street,” said Mark Williams, a master lecturer in finance at Boston University’s Questrom School of Business and a former bank........

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