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In the shadow of a protracted US-Israeli conflict, the American economy faces a complex set of challenges as midterm elections approach. The latest economic indicators suggest growth, yet the realities of rising living costs threaten to overshadow these figures. As voters prepare to cast their ballots, President Donald Trump’s economic record will be scrutinised, with particular attention to how it aligns with their daily struggles.
Economic Growth: A Silver Lining?
Despite the turmoil stemming from military actions in Iran, the US economy displayed resilience in the first quarter of 2026, achieving an annualised growth rate of 2%. This marks a notable recovery following a sluggish end to 2025. While this data provides a platform for Trump to advocate for his economic policies, it is crucial to acknowledge the underlying pressures facing consumers.
The growth trajectory has been significantly influenced by substantial investments from technology companies, particularly in artificial intelligence. James Knightley, chief international economist at ING, highlighted that while consumer spending has moderated, the surge in tech investment has become a pivotal driver of economic expansion. This shift emphasises the evolving dynamics of the American economy, with technological innovation at the forefront.
Cost of Living: A Growing Concern
While the economic growth figures are promising, the rising cost of living remains a pressing issue for American households. The ongoing conflict has exacerbated energy prices, with Brent crude oil peaking at $126 per barrel—its highest level in four years—before settling around $111. This sharp increase has translated to a significant rise in fuel costs, with the average price of petrol reaching $4.30 (£3.17) per gallon by late April, up from under $3 in February.
The consequences of these price hikes are reflected in inflation rates, which surged to 3.3% in March, a near two-year high, up from 2.4% in February. As voters weigh their options in the upcoming elections, their experience of inflation will likely play a critical role in shaping their decisions, overshadowing positive GDP figures.
Interest Rates: The Federal Reserve’s Dilemma
The Federal Reserve’s recent decision to maintain interest rates within the 3.5% to 3.75% range has dashed initial hopes for reductions, largely due to the inflationary pressures linked to the Iran conflict. The average interest rate for a 30-year mortgage has climbed from 5.98% to 6.3%, making home financing increasingly expensive for Americans.
Samuel Tombs, chief US economist at Pantheon Macroeconomics, pointed out that the sustained high oil prices, combined with expectations of an ongoing blockade of Iranian ports, could delay anticipated rate cuts until 2027. This scenario poses a challenge for consumers already grappling with rising costs, as higher borrowing costs could further constrain spending.
Stock Market Resilience Amidst Uncertainty
In a somewhat paradoxical twist, the stock market has demonstrated resilience during this period of upheaval. Major indices, including the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite, have rebounded from initial losses and continued to trend upwards. The Nasdaq has gained approximately 10% since the onset of the conflict, while the S&P and Dow have seen increases of around 5% and 1%, respectively.
This bullish market sentiment offers a glimmer of hope for investors and those with retirement savings linked to stocks, such as 401(k) plans. However, the overall economic picture remains tenuous, as the disconnect between stock market performance and the everyday financial realities faced by Americans could influence voter sentiment in November.
Why it Matters
As the midterm elections draw near, the interplay between economic indicators and the cost of living will be pivotal in determining voter behaviour. While President Trump can leverage positive GDP and stock market data, the stark reality of rising prices and stagnant wages is likely to resonate more strongly with the electorate. The outcome of the elections may hinge on the administration’s ability to address these pressing concerns, particularly as the conflict in Iran continues to shape the economic landscape. Voter sentiment will ultimately reflect not just the numbers, but the lived experiences of Americans navigating an increasingly challenging economic environment.