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As the United States approaches the critical midterm elections in November, voters will undoubtedly scrutinise the economic performance under President Donald Trump. Recent developments, including a prolonged conflict in Iran and escalating energy prices, present a complex tableau for the electorate. The latest data, however, reveals that the US economy exhibited unexpected resilience in the first quarter of 2026, with growth figures that could bolster Trump’s narrative as he seeks to rally support for his Republican party.
Economic Growth: A Silver Lining?
In a surprising twist, the US economy expanded by an annualised rate of 2% in the first quarter of 2026, rebounding from a slowdown at the close of 2025. This growth comes against a backdrop of rising consumer prices driven by tariffs and an energy crisis stemming from military actions in Iran. While economists had anticipated a more severe impact on consumer spending, the data indicated a 1.6% increase in consumption, suggesting that the overall economic landscape is more robust than initially feared.
James Knightley, chief international economist at ING, highlighted the pivotal role of technology investments, particularly in the realm of artificial intelligence (AI). He noted, “As consumer spending cools, investment linked to tech and AI has clearly become the main engine of growth in the US.” This shift towards tech-driven investment may offer a glimmer of hope for the economy, even as voters grapple with the immediate repercussions of rising costs.
Cost of Living Crisis: The Real Voter Concern
While growth figures may appear promising, the reality for many Americans is starkly different. The ongoing conflict in Iran has not only destabilised the region but also caused a surge in oil prices, with Brent crude reaching a four-year high at $126 per barrel before settling at approximately $111. This spike has translated into significant increases at the fuel pump, with prices soaring to an average of $4.30 per gallon by late April, compared to under $3 in February.
This upward pressure on fuel costs has contributed to a notable rise in inflation, which hit 3.3% in March—its highest level in nearly two years—up from 2.4% in February. As the cost of living continues to rise, voters are likely to prioritise economic stability and affordability over abstract growth metrics when casting their ballots.
Interest Rates: A Stalemate Amidst Turmoil
The Federal Reserve’s recent decision to maintain its interest rate between 3.5% and 3.75% underscores the challenges posed by the ongoing geopolitical crisis. Prior to the onset of hostilities in Iran, many economists had anticipated a series of interest rate cuts, which would have provided some relief to consumers. However, rising inflation and volatile energy prices have dashed those hopes, postponing any potential easing until at least 2027, according to Samuel Tombs, chief US economist at Pantheon Macroeconomics.
The increase in average mortgage rates, which climbed from 5.98% to 6.3% since the conflict began, further complicates the financial landscape for American households. As borrowing costs increase, the financial strain on consumers is likely to intensify, potentially dampening the positive sentiment derived from GDP growth.
Stock Market Resilience: A Mixed Blessing
Despite the economic headwinds, the stock market has shown remarkable resilience throughout the conflict. Major indices such as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite have rebounded strongly, with the Nasdaq gaining approximately 10% since the war began. The S&P has risen by around 5%, while the Dow has increased by just over 1%.
These gains are encouraging for investors, particularly those with pensions or long-term savings tied to the stock market. However, the correlation between stock market performance and everyday economic realities for average Americans remains tenuous at best. As the Republican party braces for potential losses in the upcoming elections, the stark contrast between stock market gains and the escalating cost of living will undoubtedly play a crucial role in shaping voter sentiment.
Why it Matters
The economic landscape under Trump is characterised by a paradox: while aggregate growth figures may suggest stability, the lived experience of many Americans is marred by rising costs and financial insecurity. As voters prepare to head to the polls in November, the interplay between economic indicators and the everyday realities of inflation and cost of living will be paramount. The outcome of the elections could hinge on whether the electorate perceives Trump’s economic policies as effective in addressing their immediate concerns or merely as a façade masking deeper financial challenges. In this context, the future trajectory of both the economy and political fortunes remains uncertain, heavily influenced by ongoing geopolitical developments and their implications for everyday Americans.
