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As the midterm elections approach, the American economy presents a complex picture for voters assessing former President Donald Trump’s leadership. Despite ongoing geopolitical tensions and a cost-of-living crisis exacerbated by the Iran conflict, the latest economic indicators, particularly a solid GDP growth rate, may bolster Trump’s narrative as he campaigns for Republican candidates.
Economic Growth: A Silver Lining
In the first quarter of 2026, the US economy demonstrated resilience, achieving an annualised growth rate of 2%. This uptick comes on the heels of a slowdown observed at the end of 2025, offering a glimmer of hope amidst a backdrop of rising consumer prices and persistent global uncertainties. Official data indicates that this growth has been significantly influenced by substantial investments from major technology firms, particularly in the realm of artificial intelligence.
James Knightley, chief international economist at ING, posits that while consumer spending has decelerated, the ongoing tech and AI investments have emerged as the primary drivers of US economic growth. This narrative is likely to be a cornerstone of Trump’s strategy as he reminds voters of his economic policies leading up to the elections.
Rising Costs: A Major Concern for Voters
While the GDP figures are encouraging, the stark reality of rising living costs could overshadow any positive economic narrative. The Iran conflict, which has now entered its third month, has precipitated a sharp increase in oil prices, with Brent crude rising to a four-year high of $126 per barrel before retreating slightly. This surge has translated to significantly higher fuel prices for American consumers, who were paying an average of $4.30 (£3.17) per gallon by late April, a steep increase from less than $3 prior to the conflict.
Consequently, inflation has surged, with March’s annual inflation rate hitting 3.3%, representing a significant rise from February’s 2.4%. These mounting pressures on household budgets are likely to weigh heavily on voters’ minds as they head to the polls.
Interest Rates: Stagnation Amidst Turmoil
The impact of rising oil prices and inflation has constrained the Federal Reserve’s ability to implement interest rate cuts, a move that had been anticipated prior to the onset of the Iran conflict. On Wednesday, the central bank maintained its base interest rate at 3.5% to 3.75%, dampening expectations for any immediate relief for borrowers.
The average rate on a 30-year mortgage has climbed from 5.98% to 6.3%, a trend that could hinder homebuyers and those looking to refinance. Samuel Tombs, chief US economist at Pantheon Macroeconomics, suggests that prolonged high oil prices and the likelihood of sustained sanctions against Iranian ports may delay any potential rate cuts until 2027. This stagnation in monetary policy is another factor that may influence voters’ perceptions of economic management.
Stock Market Resilience: A Mixed Blessing
Amidst these economic challenges, the US stock market has exhibited remarkable resilience. Major indices, including the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite, have regained their footing, with the Nasdaq seeing a notable increase of approximately 10% since the beginning of the conflict. The S&P 500 has risen by around 5%, while the Dow has managed a modest gain of just over 1%.
This strong performance is advantageous for investors and those with retirement savings linked to the stock market, such as 401(k) plans. However, this financial buoyancy stands in stark contrast to the troubling realities faced by everyday Americans, who are grappling with soaring prices and shrinking disposable incomes.
Why it Matters
As the midterms draw nearer, the juxtaposition of economic growth and rising living costs will play a pivotal role in shaping voter sentiment. Trump’s administration will seek to leverage positive GDP growth and buoyant stock markets as indicators of economic success. However, without addressing the pressing concerns of inflation and the cost of living, the Republican party may struggle to maintain voter confidence. The outcome of the elections will ultimately hinge on how effectively Trump can navigate these economic challenges while managing the ongoing geopolitical crisis, as American voters weigh their experiences against political rhetoric.
