As the midterm elections in November approach, former President Donald Trump faces a dual challenge: promoting positive economic growth while addressing the escalating cost of living driven by the ongoing conflict in Iran. The latest economic indicators reveal a mixed picture for the American economy, with growth figures highlighting resilience, yet consumers grapple with pronounced inflation and rising fuel prices.
Economic Growth Amid Adversity
In the first quarter of 2026, the US economy expanded at an annualised rate of 2%, a noteworthy rebound following a slowdown towards the end of 2025. This growth comes as Trump positions himself to leverage these figures, asserting the effectiveness of his economic policies. Despite the backdrop of increased US tariffs and the war in Iran, which has sparked a significant energy crisis, consumer spending showed surprising strength, rising by 1.6% on an annualised basis.
Economists suggest that while consumer confidence remains challenged, investment from major technology firms is driving much of the recent growth. James Knightley, chief international economist at ING, noted that as household spending cools, “investment linked to tech and AI has clearly become the main engine of growth in the US.” This shift underscores the evolving nature of the economy, where technological advancements are becoming increasingly pivotal.
Cost of Living Concerns
While economic growth figures are promising, they mask a more troubling reality for many Americans: the soaring cost of living. Trump’s military actions in Iran have led to a significant spike in oil prices, with Brent crude reaching a four-year high of $126 per barrel before settling back to $111. This sharp increase has had a direct impact on consumers, with the average price of petrol soaring to $4.30 (£3.17) per gallon by the end of April, compared to below $3 in February.
The inflationary pressures are evident, with March’s annual inflation rate climbing to 3.3%, the highest in nearly two years. This sharp escalation from February’s 2.4% reading illustrates how external shocks can ripple through the economy, affecting everyday expenses for American households.
The Interest Rate Dilemma
The ramifications of the Iran conflict are also influencing monetary policy. Following the March inflation spike, the Federal Reserve opted to maintain its base interest rate at 3.5% to 3.75%, quashing earlier expectations for imminent rate cuts. The ongoing turmoil has caused mortgage rates to rise, with the average rate for a 30-year mortgage climbing from 5.98% to 6.3% since the onset of the conflict.
Samuel Tombs, chief US economist at Pantheon Macroeconomics, indicated that sustained high oil prices and the expectation of prolonged sanctions against Iran could delay any potential rate cuts until 2027. This precarious situation complicates the financial landscape for many Americans, particularly those seeking affordable borrowing options.
Stock Market Resilience
Despite the economic turbulence, the stock market has demonstrated remarkable resilience, recovering losses incurred at the onset of the Iran conflict. Major indices such as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite have all rebounded, with the Nasdaq gaining approximately 10% since hostilities commenced. This positive trend is beneficial for investors and individuals with retirement accounts tied to stock performance, such as 401(k) plans.
The stock market’s recovery may offer some solace to the Republican Party as it heads into the midterm elections. However, the contrast between a flourishing stock market and the rising cost of living presents a complex narrative that voters will likely scrutinise.
Why it Matters
As voters prepare to head to the polls in November, the intersection of economic growth and the cost of living will be pivotal in shaping their decisions. While Trump aims to highlight positive GDP growth and a resilient stock market, the pressing concerns surrounding inflation and fuel prices cannot be overlooked. The outcome of the midterms will hinge on whether the electorate perceives economic recovery as translating into tangible benefits in their daily lives amidst rising costs. The dynamics of the ongoing conflict in Iran and its impact on the global economy will further complicate this landscape, making it a critical issue for both voters and policymakers alike.
