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As the United States approaches the critical midterm elections in November, voters are poised to evaluate former President Donald Trump’s economic stewardship against the backdrop of a tumultuous global environment. The ongoing conflict involving Iran has not only precipitated a significant energy crisis akin to the oil shocks of the 1970s but has also intensified the scrutiny on America’s economic indicators. Recent data reveals that while the economy has demonstrated resilience, the rising cost of living may overshadow these positive growth figures.
Economic Growth: A Mixed Bag
Recent reports indicate that the US economy grew at an annualised rate of 2% in the first quarter of 2026, a notable recovery following a slowdown at the end of 2025. This growth comes despite challenges such as increased consumer prices due to tariffs and the ongoing energy crisis triggered by the Iran conflict. Economists suggest that while consumer spending has faced pressures, it still grew by 1.6% annually, which is encouraging given the circumstances.
James Knightley, chief international economist at ING, highlighted that the surge in growth can be attributed largely to substantial investments from technology companies, particularly in the realm of artificial intelligence. He remarked, “As consumer spending cools, investment linked to tech and AI has clearly become the main engine of growth in the US.” This suggests a shift in the economic narrative, where traditional consumer spending is being supplemented by corporate investments.
Rising Costs and Consumer Sentiment
Despite the positive growth figures, the reality for many Americans is starkly different. The impact of rising fuel prices, driven in part by Trump’s military actions in Iran that have disrupted oil supply routes, is a pressing concern. Brent crude oil prices soared to $126 per barrel, a significant increase from $73 prior to the outbreak of hostilities, before stabilising around $111. Consequently, fuel prices have surged, with the average cost of a gallon of petrol reaching $4.30 by the end of April, up from less than $3 in February.
This spike in energy costs has contributed to inflationary pressures, with March’s inflation rate climbing to 3.3%, marking a near two-year high. This sharp rise in living costs is expected to weigh heavily on voter sentiment, overshadowing the more favourable growth statistics that Trump aims to highlight in his campaign.
Interest Rates and Monetary Policy
The Federal Reserve’s response to the economic landscape has been cautious. The central bank maintained its interest rates at the 3.5% to 3.75% level in light of the inflation data, quashing earlier hopes for immediate rate cuts. The ramifications of the Iran conflict are already evident, with the average interest rate for a 30-year mortgage rising from 5.98% to 6.3% since the onset of hostilities.
Samuel Tombs, chief US economist at Pantheon Macroeconomics, suggests that the combination of high oil prices and expectations of a prolonged blockade of Iranian ports may delay potential interest rate reductions until 2027. This scenario poses a significant challenge for American households already grappling with rising costs and could dampen overall economic activity.
Stock Market Resilience Amidst Turmoil
In a surprising twist, the American stock market has shown resilience throughout the ongoing conflict. Major indices such as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite have recovered from initial losses and are on an upward trajectory. Since the conflict began, the Nasdaq has surged by approximately 10%, the S&P 500 has risen by about 5%, while the Dow has seen a modest increase of just over 1%.
This stock market performance is promising for investors, particularly those whose retirement savings are tied to market performance. However, it remains to be seen how these gains will translate into broader economic stability, especially for those feeling the pinch of inflation and rising living costs.
Why it Matters
As Trump gears up for the midterms, the dual narratives of economic growth and rising costs will play a pivotal role in shaping voter perception. While the GDP figures and stock market gains may provide a veneer of economic health, the reality of escalating living expenses could challenge the Republican narrative. The outcomes of the elections will hinge not only on the economic statistics that Trump can tout but also on the tangible experiences of everyday Americans grappling with the realities of inflation and uncertainty in the face of ongoing geopolitical strife. How the administration navigates these challenges in the coming months will be crucial in determining its political fate.
