As the midterm elections approach, voters find themselves weighing President Donald Trump’s economic performance against a backdrop of rising living costs and geopolitical turmoil. The ongoing conflict in Iran, predicted by Trump to conclude swiftly, has instead led to escalating energy prices reminiscent of the oil crises of the 1970s. Despite this, recent economic indicators reveal growth that the president is likely to tout as a success.
Economic Growth Amidst Turmoil
In the first quarter of 2026, the US economy recorded an annualised growth rate of 2%, a notable rebound following a slowdown in late 2025. This figure, released this week, offers Trump a potentially advantageous narrative as he campaigns for Republican candidates in the upcoming elections.
However, this growth has not come without its challenges. Consumers are feeling the pinch of increased tariffs and the energy shock stemming from the conflict in Iran. Yet, economists have noted that the impact on consumer spending has been less severe than anticipated, with a 1.6% increase in consumption on an annualised basis. James Knightley, chief international economist at ING, pointed out that while consumer spending may be cooling, investments in technology and artificial intelligence are driving growth in the US economy.
The Cost of Living Crisis
Despite the positive growth figures, the cost of living remains a pressing concern for many Americans. The conflict in Iran has led to a significant rise in oil prices, with Brent crude reaching a four-year high of $126 per barrel before settling at around $111. This spike has had a direct impact on consumers, with gasoline prices surging to $4.30 (£3.17) per gallon by the end of April, up from less than $3 in February.
The surge in oil prices has also contributed to rising inflation. March saw the average annual price increase hit 3.3%, the highest it has been in nearly two years, compared to 2.4% in February. For many voters, these rising costs may weigh more heavily than the headline growth figures when they head to the polls in November.
Interest Rates and Housing Market Implications
The ongoing conflict has also influenced monetary policy, particularly regarding interest rates. The Federal Reserve maintained its base rate at between 3.5% and 3.75% this week, dashing hopes for imminent cuts that were anticipated prior to the onset of the war. Mortgage rates have climbed as a result, with the average 30-year mortgage rate increasing from 5.98% to 6.3% since the conflict began.
Samuel Tombs, chief US economist at Pantheon Macroeconomics, has indicated that high oil prices and expectations of prolonged sanctions against Iran could delay any potential rate cuts until 2027. This scenario may dampen housing market activity, impacting many Americans looking to buy homes.
Stock Market Resilience
In contrast to the pressures faced by consumers, the stock market has shown resilience during the conflict. Major US indices, including the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite, have recovered losses incurred during the initial stages of the conflict, continuing an upward trajectory that began before the war.
The Nasdaq has gained approximately 10% since the start of the conflict, while the S&P 500 and Dow have risen by about 5% and 1%, respectively. These developments are positive news for investors and those with retirement savings linked to the stock market, such as 401(k) plans.
Why it Matters
As voters prepare for the midterm elections, the state of the economy will be a pivotal factor in shaping their decisions. While Trump may highlight the GDP growth and stock market performance as indicators of his administration’s success, the reality of rising living costs will likely resonate more deeply with the electorate. How effectively he can address these economic challenges before the elections will significantly influence both his legacy and the Republican Party’s fortunes at the polls.
