Full speed ahead, or a step back? 2026 a litmus test for ambitious Trump agenda

Anchor looks back on the year that was in Trump’s wild first year back in office – and what corporates and investors can expect from U.S. policy and politics in 2026.

U.S. politics and policy in 2025 was a reminder of the wisdom in the old adage, “The more things change, the more they stay the same.”

Certainly a lot changed in the U.S. this year. President Trump barreled into office in January, issuing more executive orders during his first 100 days than any president in history and taking extraordinary measures to consolidate power in the White House. Trump took a hammer to the world order through his trade, immigration and diplomatic efforts, leading to a U.S. foreign policy more abrasive, transactional and solitary than any in the post-World War II era. At home, Trump and his team were equally willing to embrace disruption, starting with the federal workforce, which Trump argues had become too sclerotic, inefficient and left-leaning. A net of 249,000 employees, or 11%, departed the federal government in 2025 through a combination of layoffs, early retirements and attrition. The Trump Administration has been willing (gleeful, even) to challenge the judicial system, Congress and policy convention in the name of taking the radical action the MAGA movement believes necessary to reform a troubled nation.

Yet for all the ‘is-this-headline-real?’ moments of 2025, Trump 2.0’s trajectory bears more characteristics of a second-term U.S. presidency than Trump himself would ever admit. Like his predecessors, Trump faces the challenge of holding the attention of his party and the electorate when the calendar leads everyone outside the White House to look ahead to the next election after the first year. The centerpiece of Trump’s and the GOP-controlled Congress’ legislative agenda in 2025 was a tax cut, a go-to Republican stratagem since the Reagan era. Overshadowed by controversies that have swirled around controversial Cabinet secretaries like Pete Hegseth and Kristi Noem, the majority of Trump’s appointees are going about loosening regulations that guide businesses – again taking a page from a GOP playbook honed over decades.

Last, Trump’s ambitions have been blunted in multiple ways, from losses in the courts, to pushback from financial markets, to the sagging public approval ratings that saddle many a modern democratic world leader, leading to several big policy shifts by Trump. To us, the most consequential period of 2025 from a policy perspective was in early April following the announcement of Trump’s “Liberation Day” tariffs as well as his threats to fire Federal Reserve Chair Jay Powell. The combination of falling equity markets, rising bond yields and a drop in approval ratings led Trump to water down the tariffs and to back off from efforts to remove Powell. The episode showed even the Trump Administration would course-correct in response to big shifts in public and investor sentiment – but that these forces would still give Trump more room to maneuver than any other president, as his still-potent trade war, as well as his continued pressure campaign on the Fed, highlight all too well.

The Trump agenda stands at a crossroads heading into 2026. Trump and his party have been put on their back foot by recent Republican losses in state and local elections as well as weakening polls. The U.S. economic headlines are dominated by reports of stubborn inflation, slowing job growth and sluggish consumer sentiment. Trump must rebound from his recent travails and lead his party to victory in the November 2026 midterms to solidify and expand upon the expansive agenda he has launched. History is not on his side. The president’s party has lost 25 House seats on average in midterm elections since 1946 (see below); Republicans lost 40 seats in the midterm elections in 2018 during Trump’s first term. The GOP holds a 218-213 majority in the House, meaning even a narrow House victory would allow Democrats to slow Trump’s agenda using the majority’s oversight and subpoena powers. (As we have previously written, we view the speculation that Trump will

run for a third term as overblown given the 22^nd Amendment to the U.S. Constitution, which states “[n]o person shall be elected to the office of the President more than twice.”) That said, Trump has made his political living out of defying expectations. It is not a stretch to envision a series of pivots by Trump to attempt to boost his and Republicans’ popularity heading into the midterms: exempting from tariffs food and consumer staples that have spiked in price; a deal to extend the Affordable Care Act (ACA) tax credits; a peace deal in Ukraine; a trade deal with China.