After tomorrow's midterm elections, the 2028 presidential race unofficially begins. There is reason to think that fiscal policy will shape the contours of the race in a way that deficits and debt haven't for nearly four decades.

The big picture: Candidates for the White House will be running amid historically large deficits, high and rising debt service costs, elevated interest rates and an imminent Social Security funding crunch.

• It is a world where policy trade-offs will be harder to ignore.
• Late-2020s fiscal reality could constrain campaign promises in ways the backdrop of 2016, 2020 and 2024 did not — or at least compel candidates with ambitious plans to face hard questions about costs.
• A possible comparison would be the 1992 election, when deficit reduction was a top-tier issue. Not coincidentally, 1991 marked a record in the federal government's interest costs as a share of GDP — a level matched this year.

Flashback: It's instructive to compare the fiscal environment of 2027 with 2019, when Democratic candidates jockeyed to take on President Trump in the 2020 race.

• The 30-year fixed-rate mortgage in 2019 averaged 3.9%, and the 10-year Treasury yield averaged 2.1%. Now, those numbers are 7.2% and 4.88%, respectively.
• The national debt was 79% of GDP, and the government was spending 1.8% of GDP in interest on that debt. Today, those numbers are about 100% and 3.2%.
• Even some center-left wonks were strikingly dismissive of the hazards of large budget deficits. This contributed to a sense, when the pandemic and Biden administration rolled around, that the sky was the limit on government borrowing.

Zoom out: Hanging over it all, the Social Security trust fund is expected to be depleted in late 2032, late in the next presidential term.

• To prevent a 22% automatic benefit cut, Congress and the next president will need to agree to some mix of benefit cuts and tax increases, or an allocation from the government's general fund to prop up the program — all contentious and unpalatable options.

State of play: Two important pieces out in recent days from Biden administration economic policy officials stress different aspects of this fiscal reality.

• Mike Konczal, a former White House adviser now at the Economic Security Project, argued on Substack that the 2027-2028 race for the Democratic nomination is unlikely to feature the same policy dynamics as its 2019-2020 equivalent — and the fiscal environment is part of the reason.
• In contrast to the secular stagnation, zero-lower-bound world of much of this century, he said, we've "now moved from a world where there wasn't enough demand to one where supply is the limiting factor."
• "Moreover, the deficit situation is quite grim in a way I don't think people appreciate," he added.

Separately, Zachary Liscow, a Yale law professor and former chief economist at the Office of Management and Budget, made the case that Democrats should embrace pro-growth policies that might make the fiscal bind less binding.

• Liscow did not, however, argue that embracing policies that achieve more rapid GDP growth will solve the debt problem on its own.
• "The scale of the fiscal challenge is simply too large for GDP expansion to serve as a silver bullet," Liscow wrote in The Argument.

Between the lines: For most of this century, the deficit has existed as a rhetorical cudgel in American politics. John Kerry attacked George W. Bush over wide deficits in the 2004 race; Mitt Romney did the same to Barack Obama in 2012.

• But the actual, concrete problems caused by deficits — high mortgage rates, debt service costs that crowd out other national priorities, Social Security solvency — are far more real and urgent now than they were then.
• The big question ahead is how, in a fractured age, the political discourse evolves to reflect this.

Output of American factories continued to expand in October, driven by surging demand for AI-related equipment that's also straining supply chains and pushing up prices, according to two new manufacturing surveys.

By the numbers: The Institute for Supply Management's manufacturing index rose 1 point, to 55.5, last month — the 10th straight month of expanding activity following a yearslong slump.

• Production accelerated at the fastest pace since November 2021.
• Even as S&P Global's manufacturing gauge dipped slightly by 1 percentage point, to 54.9, the firm says that the sector is on its best run since early 2022. Hiring accelerated to its fastest pace in more than five years.

Yes, but: Both surveys show strains from the insatiable demand for AI-related equipment, alongside higher energy costs and war-related shipping disruptions.

• S&P Global said that manufacturers' selling prices rose at the sharpest rate in four years.
• ISM's prices index last month slipped by 2.7 percentage points, to 75.2%, but continued to signal widespread increases in raw material costs.
• "With demand often exceeding supply, producers have been increasingly able to pass higher costs on to customers, notably for energy-related inputs," S&P Global chief business economist Chris Williamson said in a release.

What they're saying: "New month, same trends: Any commodity consumed by AI/data centers is in a crunch, both for supply and pricing," one manufacturer told ISM.

• A machinery manufacturer described extraordinary demand for semiconductors and defense equipment: "Lead times and prices are increasing, and some carry COVID-19 era delays — four weeks is now 50 weeks. ... We are hand to mouth."

The other side: A chemical products manufacturer said costs had risen more than 6% this year, noting that uncertain economic policy has made it "impossible to make sound long-term decisions."

The bottom line: The manufacturing resurgence is a bright spot for the U.S. economy. Surging AI-related demand is testing factories' ability to keep up as prices continue to surge.