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As voters prepare for the upcoming midterm elections, the state of the economy has taken centre stage, particularly in the context of President Trump’s handling of the ongoing conflict with Iran. The recent economic data offers a mixed bag, highlighting both growth and rising costs that could significantly influence voter sentiment.
Economic Growth Amidst Turmoil
Despite the challenges posed by the prolonged US-Israeli conflict in Iran, which has now surpassed three months, the American economy has shown surprising resilience. The latest quarterly GDP figures reveal an annualised growth rate of 2% for the first quarter of 2026, a notable rebound following a slowdown in late 2025. This growth comes even as consumers grapple with higher prices attributed to tariffs and the escalating energy crisis stemming from the war.
Analysts suggest that while consumer spending is under pressure—with a modest increase of 1.6%—the primary driver of growth has been substantial investment from major technology companies. James Knightley, chief international economist at ING, noted that as consumer expenditure cools, “investment linked to tech and AI has clearly become the main engine of growth in the US.”
Rising Costs and Inflation
While the economic growth figures are promising, they may not resonate with voters who are feeling the pinch of rising living costs. The conflict’s impact on oil prices has been pronounced, with Brent crude reaching a four-year high of $126 per barrel before settling around $111. Just two months prior to the conflict, prices hovered around $73.
This surge in oil prices directly affects consumers, with gasoline prices soaring to $4.30 (£3.17) per gallon by late April, a striking increase from less than $3 in February. Consequently, inflation has surged, with March seeing an annual increase of 3.3%—the highest rate in nearly two years, up from February’s 2.4%.
Interest Rates and Housing Market Pressures
The Federal Reserve’s recent decision to maintain interest rates between 3.5% and 3.75% has dashed hopes for immediate rate cuts, particularly in light of the rising inflation driven by the war’s economic fallout. The average interest rate for a 30-year mortgage has climbed from 5.98% to 6.3%, further straining American households seeking to purchase homes.
Samuel Tombs, chief US economist at Pantheon Macroeconomics, indicated that sustained high oil prices and the likelihood of continued US sanctions on Iranian ports could postpone any potential rate cuts until 2027. This extended period of elevated borrowing costs could exacerbate the financial strain on families already grappling with inflation.
Stock Market Stability Amidst Global Uncertainty
In contrast to the pressures on consumers, the stock market has demonstrated a remarkable recovery since the onset of the conflict. Major indices such as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite have rebounded from initial losses, with the Nasdaq up by approximately 10%, the S&P gaining 5%, and the Dow rising just over 1%.
This resurgence is encouraging news for investors and individuals with retirement savings tied to the stock market, such as 401(k) plans. However, with the Republican Party facing potential losses in both the House and Senate, the economic narrative will play a crucial role in shaping voter decisions as they head to the polls in November.
Why it Matters
The upcoming midterm elections will hinge significantly on economic perceptions, particularly the balance between growth figures and the harsh realities of rising living costs. Voter sentiment will likely be influenced not only by the GDP growth and stock market performance but also by the tangible impact of inflation on their daily lives. As the conflict in Iran continues, the ability of Trump and the Republican Party to navigate these economic challenges will be pivotal in determining their electoral fate.
