As the conflict in Iran continues to escalate, American voters will soon have to decide how they assess the economic management of President Donald Trump. Recent economic indicators suggest a complex picture, with robust GDP growth juxtaposed against rising living costs driven by international turmoil. With midterm elections approaching in November, the financial landscape is set to play a pivotal role in shaping political fortunes.
Economic Growth Amidst Turmoil
Despite the ongoing war in Iran, which has now extended beyond three months, the United States has reported an annualised GDP growth rate of 2% for the first quarter of 2026. This figure marks a notable recovery following a slowdown at the end of 2025. According to official statistics, the resilience of the economy comes even as consumers grapple with rising prices attributed to tariffs and energy shocks resulting from geopolitical tensions.
Economists have identified significant corporate investments, particularly in technology and artificial intelligence, as a primary driver of this growth. James Knightley, chief international economist at ING, remarked that “investment linked to tech and AI has clearly become the main engine of growth in the US,” suggesting a shift in economic momentum as consumer spending shows signs of cooling.
Cost of Living Pressures
While the GDP figures may provide a veneer of economic stability, the reality for many Americans is far more challenging. The impact of Trump’s military actions in Iran, including the closure of strategic shipping lanes in the Strait of Hormuz, has led to soaring oil prices. Brent crude, a key global benchmark, reached a peak of $126 per barrel before settling back to approximately $111. This sharp rise has translated into significant increases at the petrol pump, where fuel prices soared to $4.30 (£3.17) per gallon by late April, compared to less than $3 in February.
These rising costs have contributed to inflationary pressures, with March’s inflation rate hitting 3.3%, the highest in nearly two years, and up from February’s 2.4%. As voters head into the midterms, it is likely that their decisions will be heavily influenced by their personal experiences with rising costs, overshadowing the more abstract figures of economic growth.
Interest Rates and Mortgage Implications
The Federal Reserve’s recent decision to maintain interest rates between 3.5% and 3.75% reflects the pressures exerted by the conflict in Iran, particularly the inflation figures emerging from March. Economists had previously anticipated a series of rate cuts, but the prevailing uncertainty has dashed those hopes. The average interest rate for a 30-year mortgage has seen a corresponding increase from 5.98% to 6.3% since the onset of military operations.
Samuel Tombs, chief US economist at Pantheon Macroeconomics, indicated that sustained high oil prices and ongoing tensions in the region could delay any potential rate cuts until 2027. This scenario could further strain household budgets, particularly for those considering home purchases or refinancing, as higher borrowing costs compound existing economic pressures.
Stock Market Resilience
In contrast to the bleak outlook for consumers, the stock market has displayed notable resilience amidst the geopolitical chaos. Major indices such as the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite have rebounded from early losses and are continuing their upward march. The Nasdaq has recorded a remarkable increase of approximately 10% since the beginning of hostilities, while the S&P has risen by about 5%, with the Dow showing a more modest gain of just over 1%.
This performance is encouraging for investors and those with pension plans linked to stock market performance, such as 401(k) accounts. However, these gains may not resonate with voters who are feeling the pinch of everyday expenses.
Why it Matters
As the United States heads towards a crucial electoral period, the interplay between economic growth and the rising cost of living will undoubtedly shape voter sentiment. While Trump may tout positive GDP figures and a buoyant stock market as indicators of a strong economy, the reality for many Americans is one of financial strain. The outcome of the midterms may hinge less on abstract economic data and more on the tangible experiences of voters grappling with inflation and rising costs—a reminder of the enduring truth in politics: it is often the economy that dictates electoral success.
