The Washington brief

Executive summary

• Early 2026 election results reflect heightened voter engagement and tighter margins within historically pro-Republican jurisdictions. Affordability concerns and the ongoing conflict in Iran remain top issues for voters. Recent campaigning from President Trump has focused heavily on recently enacted tax cuts, border security, and crime.
• Congress faces a compressed agenda, with roughly three months before the August recess to address Department of Homeland Security (DHS) funding and Fiscal Year 2027 (FY’27) appropriations. At the same time, the approaching reauthorization deadline for FISA Section 702 is straining floor time and complicating broader budget negotiations.
• Other key policy initiatives, including cryptocurrency market structure legislation and separate housing affordability packages, remain stalled due to unresolved Senate-House differences and renewed regulatory concerns. For cryptocurrency, key issues like anti‑money‑laundering and Bank Secrecy Act (AML/BSA) parity and ethics considerations are still being discussed, while the timeline for bill passage remains uncertain.

Our take

Early signals from the 2026 election cycle

Democratic candidates have consistently exceeded expectations in both major and minor contests since President Trump's return to the White House, indicating strong voter motivation across the party base. Earlier this month, elections in Wisconsin and Georgia underscored this trend. In Wisconsin's Supreme Court election, the Democratic-supported candidate secured a 20-point victory in a state previously carried by President Trump. In Georgia, Democrat Shawn Harris lost a special election to fill the seat vacated by Marjorie Taylor Greene, but reduced the Republican victory margin by 25 points versus 2024. Notably, this election represented the largest Democratic swing among all seven House special elections held to date this cycle.

Democrats also picked up a win this week in Virginia, where voters narrowly approved a special statewide election to temporarily redraw congressional districts ahead of the 2026 midterm elections. If implemented, the change could improve the party's odds in future congressional elections, though legal challenges are ongoing. We expect Republicans to now counter in Florida for potential redistricting gains.

Historically, the incumbent party often loses ground during midterm elections, and early indicators suggest that 2026 may continue this trend. Across statewide primaries held thus far in 2026, Democratic party participation has been notably strong. Texas saw a record 2.3 million votes cast in its Democratic primary last month, while North Carolina’s Democratic statewide primary drew more voters than the corresponding Republican contest. Additionally, Mississippi experienced an almost 80% increase in Democratic turnout compared to the 2018 Senate primary.

Republican observers attribute these developments to general affordability concerns, rising gas prices, and continued uncertainty surrounding Iran. We expect further pressure on the Trump administration to end the current conflict, ease oil prices, and improve voter sentiment in the weeks ahead. The next round of major elections will occur in May, with eleven states set to hold primaries during that month.

Other significant policy areas to watch

Government Funding

Congressional Republicans are considering a two-step approach to end the DHS shutdown. The plan would fund the bulk of DHS, including the Coast Guard, the Transportation Security Administration, and the Federal Emergency Management Agency through a bipartisan Senate bill passed in March. Additionally, the plan leverages budget reconciliation to bypass a Democratic filibuster and fund immigration enforcement for several years. The two-step plan has received pushback from many House Republicans calling for full funding of DHS. DHS funding has become increasingly complicated with select members of Congress linking the reauthorization of foreign surveillance measures (FISA Section 702) to current budget negotiations. The debate has heightened partisan tensions and further slowed progress on the broader appropriations process. As a result, DHS faces additional uncertainty around program continuity and long-term planning.

Cryptocurrency Market Structure

Several crypto-policy initiatives are in progress. The Office of the Comptroller of the Currency (OCC) is receiving feedback on the GENIUS Act, a stablecoin bill with an unresolved loophole affecting banks' deposits and delaying the broader CLARITY Act designed to clarify digital asset oversight by the CFTC and SEC. Senators Tillis and Alsobrooks will suggest closing select stablecoin issuer loopholes, but resolution remains uncertain. Banks worry about nonbanks accessing deposit-like activities, especially as regulators consider new charters and potential Federal Reserve master account access. Key issues like AML/BSA parity and ethics considerations are still under negotiation, while the timeline for bill passage remains uncertain. The Council of Economic Advisors recently stated that stablecoin yield will not impact bank deposits—a point banks strongly contest.

Housing Affordability Package

Bipartisan negotiations are ongoing regarding two competing housing supply-side affordability packages. However, substantive differences between the House and Senate have delayed final resolution, particularly with respect to institutional investor restrictions and rider provisions related to central bank digital currency (CBDC). House Financial Services and Senate Banking leaders are evaluating options for progress, including the possibility of a conference or further amendments.

Bottom line

The midterm election cycle will remain an integral talking point for policy observers in the months ahead. Strong voter participation and early Democratic party gains have partially reflected growing concerns around affordability and the ongoing conflict with Iran. Separately, Congress now has limited time to address DHS funding, surveillance concerns, and FY’27 appropriations ahead of the August recess.