Two American Century Investments Fund Managers: Data Center Regulation May Be the Key Market Variable in 2027 After Midterm Elections
American Century Investments fund managers Steve Bartolini and Miguel Castillo analyze how three paths—reduced likelihood of expanded fiscal spending following a Democratic victory in the midterm elections, potential cooling of the Iran conflict, and data center regulation—jointly influence the Federal Reserve's policy pace and bond market opportunities.
Less than a week after the Federal Reserve held rates steady in October, Democrats won the midterm elections while maintaining control of both chambers of Congress. Steve Bartolini, Senior Portfolio Manager at American Century Investments, and Miguel Castillo, Portfolio Manager, argue that this political shift does more than affect legislative processes; it alters the near-term investment landscape through three specific pathways.
The first pathway involves fiscal policy and its rhythm. The two fund managers note that election results and the resulting policy shifts could prompt the Federal Reserve to extend its pause. A notable factor is that a divided federal government typically reduces the likelihood of expanding fiscal spending. A lower probability of fiscal expansion means inflationary pressure from the government’s demand side may weaken, providing the Federal Reserve with a longer observation window to maintain current interest rate levels.
The second pathway is directly related to energy and inflation. Exit polls indicate that the war in Iran, which has driven up living costs, pushed voters toward Democratic candidates. Oil prices fell following the announcement of election results, with markets interpreting this as a sign that voter dissatisfaction might lead to a near-term de-escalation of the conflict. If this scenario materializes, falling energy prices would dampen overall inflation, providing data support for the Federal Reserve to extend its pause.
The third pathway is the most forward-looking: data center regulation. In several governor races, the construction costs, tax incentives, and resource consumption of data centers became central issues. Opponents worry about rising electricity bills, other cost increases, and water depletion. The two fund managers judge that any slowdown in data center growth resulting from this would be a positive signal for corporate debt and capital expenditure but a negative signal for economic growth. They expect data center regulation to become a primary market variable in 2027.