Midterms Change Nothing for CFOs: Higher Borrowing Costs Are Here to Stay

Finance chiefs should plan for 2027 assuming borrowing costs stay elevated — regardless of who controls Congress after the midterms. "CFOs should go into 2027 expecting sustained higher borrowing costs," Josh Putnam, EY-Parthenon's global and Americas corporate finance leader, told Fortune. Volatile financing conditions will persist across party lines, he said.

The diagnosis is concrete: growing deficits, strong capital demand, inflation volatility, and policy uncertainty are all pressuring long-term rates, Putnam said. That makes disciplined capital allocation, debt management, and investment selection more consequential than any electoral outcome. His prescription is to stress-test investment hurdles, evaluate debt maturities, and protect balance-sheet flexibility. In plain words: know which projects clear your cost of capital, and cut the ones that do not.

What does divided government actually change?

Political gridlock alone does not guarantee more expensive long-term money. A divided government "would not automatically push term premiums higher," said Gregory Daco, EY-Parthenon's chief economist. But repeated budget fights, shutdown risks, debt-ceiling stress, and broader fiscal uncertainty "would reinforce upward pressure," he said. Daco advises testing investments against a range of financing costs and holding hurdle rates that reflect a structurally higher and more volatile cost of capital.

The near-term exposure may matter more than the long end. Mark Williams, a master lecturer at Boston University's Questrom School of Business and a former Federal Reserve bank examiner, said banks respond to elevated risk by tightening credit terms and cutting lending. "Markets respond to uncertainty by charging more, whether the risk originates in Washington, D.C., or on Wall Street," Williams said.

His warning is specific: "Legislative gridlock can create volatile funding cycles and cause short-term borrowing costs to spike." Companies that rely on commercial paper should shift toward longer-term funding, diversify financing sources, and secure credit lines across multiple banks, he said.

Shutdowns carry a second-order cost — delayed economic data. Williams said CFOs should build internal models to fill those statistical gaps. Government contractors should additionally model how delayed federal payments would hit cash flow.

Why did the AI buildout become a political liability?

AI and data center investment now faces scrutiny on two fronts: rising financing costs and a hardening political backlash. On Tuesday, candidates in both parties who campaigned on rising electric bills won key races, and at least 14 Ohio towns passed restrictions on data center development, Fortune reported.

The electoral results underscore growing regulatory and political uncertainty for AI developers — uncertainty that raises costs and complicates project financing, Williams said. Private credit funds, the primary lenders in the sector, would demand higher interest rates, he said, and prices on outstanding AI bonds could fall as yields rise. Notably, Williams pointed out the market was already repricing AI risk before the election; the vote accelerated a trend, it did not create one.

His advice is a return to fundamentals: more conservative net present value assumptions, multi-variable scenario analysis, and stress tests built around higher borrowing costs and stricter lending covenants.

Daco framed the political risk in affordability terms. "A backlash is likely if households see AI investment raising power costs while its benefits remain concentrated," he said. His guidance to CFOs: prioritize projects with measurable productivity gains, price power and infrastructure costs fully, and pair technology spending with investment in workers and skills.

What separates winners in the next cycle?

The through-line from all three analysts is that discipline, not timing, determines outcomes. Putnam closed with the stakes: "Companies that demonstrate they can put capital to work effectively will be best positioned to pursue growth." For finance chiefs, the midterms delivered a reminder rather than a reset — the cost of capital stays high, and the burden of proof sits on every investment case.

By Olivia Hart