As the United States approaches the midterm elections in November, the economic landscape presents both opportunities and challenges for President Donald Trump. While initial reports show a 2% annualised growth in the first quarter of 2026, the ongoing conflict in Iran and its consequential energy crisis are casting long shadows over voter sentiment and economic stability. This juxtaposition of growth against a backdrop of rising costs is likely to be a pivotal factor in shaping electoral outcomes.
Economic Growth Metrics
Despite ongoing geopolitical tensions, recent economic indicators reveal a resilient US economy. The growth figures released this week suggest a rebound from the slowdown experienced towards the end of 2025. The 2% increase in GDP during the first quarter can be partially attributed to substantial investments from technology firms, particularly in the burgeoning field of artificial intelligence. James Knightley, chief international economist at ING, noted that while consumer spending remains subdued, “investment linked to tech and AI has clearly become the main engine of growth in the US.”
However, this growth is occurring in a context fraught with challenges. Domestic tariffs have increased costs for consumers, and the Iran conflict has led to a significant shock in energy prices, reminiscent of the oil crises of previous decades. The combination of these factors could complicate the narrative Trump seeks to present to voters.
Cost of Living Concerns
Voter sentiment is increasingly shaped by the immediate realities of the cost of living, overshadowing the more abstract measures of economic performance. The war in Iran has disrupted oil supplies, driving the price of Brent crude oil to a recent high of $126 per barrel, although it has since receded to around $111. This increase has translated into soaring fuel prices for consumers, who are now paying an average of $4.30 (£3.17) per gallon, a stark rise from below $3 earlier in the year.
Such inflationary pressures are evidenced in the latest consumer price index, which reported a near two-year high annual inflation rate of 3.3% for March, a considerable jump from February’s 2.4%. As inflation continues to bite, the electorate’s focus will likely shift from GDP growth figures to the tangible impacts on their wallets.
Interest Rates and Housing Market
The Federal Reserve’s response to the inflationary pressures stemming from the Iranian conflict has been cautious. The central bank opted to maintain its base interest rate at 3.5% to 3.75% on Wednesday, quashing hopes for immediate rate cuts that many economists had anticipated prior to the escalation of the conflict. The average interest rate for a 30-year mortgage has surged from 5.98% to 6.3%, complicating the housing market for potential buyers and existing homeowners alike.
Samuel Tombs, chief US economist at Pantheon Macroeconomics, warned that sustained high oil prices and the expectation of a prolonged blockade of Iranian ports could delay interest rate reductions until 2027. Such a scenario would further entrench the economic pressures faced by American families, making the upcoming elections all the more consequential for the Republican Party.
Resilience in Financial Markets
Amidst these turbulent conditions, the stock market has shown remarkable resilience. Major indices, including the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite, have recovered from their initial losses related to the conflict, with the Nasdaq gaining approximately 10% since the onset of hostilities. The S&P has risen around 5%, while the Dow has seen a more modest increase of just over 1%.
This rebound is encouraging for investors and could provide a buffer for pension funds, like 401(k) plans, that are heavily invested in the stock market. However, as Republican strategists prepare for the elections, they must consider how the optimism in financial markets may not translate into voter satisfaction in light of the escalating cost of living.
Why it Matters
As the midterm elections draw near, the juxtaposition of economic growth against rising living costs presents a complex narrative for voters. While Trump’s administration may tout positive GDP figures and stock market performance, the reality for many Americans is a struggle with high fuel prices and inflation. The outcome of the elections will hinge not just on economic indicators but on the electorate’s perception of their day-to-day financial realities. The President’s ability to navigate these challenges and communicate effectively with voters will be crucial in determining his party’s fate in the upcoming polls.
