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As the midterm elections approach, the performance of the economy will be a pivotal factor for voters assessing Donald Trump’s leadership. Recent developments highlight a complex economic landscape shaped by ongoing international conflict, particularly the war in Iran, which has significantly impacted energy prices and inflation, creating a challenging environment for American households.
Economic Growth Amid Crisis
Despite the turbulence caused by the escalating conflict in Iran, which has now stretched into its third month, the U.S. economy demonstrated resilience in the first quarter of 2026. According to official data released this week, the economy expanded at an annualised rate of 2%, a noteworthy rebound following a slowdown towards the end of 2025.
This growth is particularly relevant for Trump, who is keen to frame his economic policies as effective as he faces voters in November. However, this positive statistic comes against a backdrop of heightened consumer challenges, primarily driven by tariffs and an energy crisis linked to the war.
James Knightley, the chief international economist at ING, noted that while consumer spending has shown a modest increase of 1.6% annually, technological investments, particularly in artificial intelligence, are crucially driving the current economic upturn. “Investment linked to tech and AI has clearly become the main engine of growth in the U.S.,” he remarked.
Rising Costs and Inflation
Despite the optimistic growth figures, the impact of rising living costs remains a pressing concern for many Americans. The ongoing conflict has severely affected oil prices, with Brent crude reaching a four-year peak of $126 per barrel before settling around $111. This sharp increase has translated into higher fuel prices, with Americans reportedly paying an average of $4.30 (£3.17) per gallon by the end of April, compared to under $3 before the onset of hostilities in February.
Consequently, inflation has surged, with the annual rate hitting 3.3% in March—the highest in nearly two years—up from 2.4% in February. This inflationary pressure is likely to loom large in voters’ minds as they head to the polls, as the familiar political adage “It’s the economy, stupid” resonates more than ever.
Interest Rates and Borrowing Costs
The economic fallout from the Iran war has also influenced monetary policy, effectively squashing expectations for imminent interest rate cuts by the Federal Reserve. On Wednesday, the central bank opted to maintain its base interest rate between 3.5% and 3.75%, a decision influenced by the recent inflation spike.
In the wake of rising oil prices, the average interest rate for a 30-year mortgage has climbed from 5.98% to 6.3%, impacting many Americans looking to buy homes. Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, cautioned that sustained high oil prices and a prolonged blockade of Iranian ports could delay any potential rate cuts until 2027, further complicating the financial landscape for American consumers.
Stock Market Resilience
In contrast to the challenges faced by consumers, the stock market has shown remarkable recovery during the conflict. Major U.S. indices, including the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite, have all rebounded significantly, with the Nasdaq climbing approximately 10% since the onset of the war.
This upward trend is encouraging for investors and those with retirement funds tied to the stock market, like 401(k) plans. However, the broader electoral implications for Trump’s Republican party cannot be ignored, especially with predictions suggesting potential losses in both the House and Senate.
Why it Matters
The intersection of economic growth and rising living costs will be crucial as voters prepare to make their decisions in the upcoming midterms. While Trump may point to positive GDP figures and a recovering stock market as indicators of success, the stark reality of inflation and escalating prices will weigh heavily on voters’ minds. The outcome of the elections may ultimately hinge on how effectively Trump can address these pressing economic concerns in the months ahead, particularly in relation to the ongoing conflict in Iran and its ramifications for everyday Americans.
