As the midterm elections approach, voters are likely to scrutinise former President Trump’s economic performance against a backdrop of rising living costs and geopolitical turmoil. The ongoing conflict in Iran has significantly impacted global energy prices, leading to heightened inflation and consumer discontent. Yet, recent economic data reveals a mixed picture, with growth figures suggesting resilience in the U.S. economy.
Economic Growth Amidst Turmoil
Despite the upheaval caused by the conflict in Iran, the U.S. economy recorded a 2% annualised growth rate in the first quarter of 2026. This marks a rebound from the previous year’s slowdown, providing Trump with a talking point as he campaigns for Republican support in the upcoming elections. The growth can be attributed in part to substantial investments from technology companies focusing on artificial intelligence, which have emerged as a key driver of economic activity.
James Knightley, chief international economist at ING, highlighted that while consumer spending has slowed, the tech sector’s investments are propelling growth. “Investment linked to tech and AI has clearly become the main engine of growth in the U.S.,” he noted.
The Cost of Living Crisis
While economic growth figures may seem promising, the everyday reality for many Americans is starkly different. The conflict in Iran has caused a spike in oil prices, with Brent crude reaching a peak of $126 per barrel before settling at around $111. This surge has led to increased fuel costs, pushing prices at the pump to an average of $4.30 (£3.17) per gallon by late April, compared to less than $3 in February.
Such price hikes have exacerbated inflation, with March’s annual inflation rate climbing to 3.3%, the highest level in nearly two years. Given that voters often prioritise personal financial wellbeing over abstract economic indicators, these rising costs could weigh heavily on Trump’s electoral prospects.
Interest Rates and Borrowing Costs
The ongoing conflict and rising inflation have prompted the Federal Reserve to maintain interest rates in the 3.5% to 3.75% range. This decision dashed expectations for imminent rate cuts that many had anticipated prior to the outbreak of hostilities. The average interest rate on a 30-year mortgage has also climbed from 5.98% to 6.3%, compounding financial pressure on potential homebuyers.
Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, indicated that sustained high oil prices could delay any potential rate cuts until 2027, further entrenching challenges for consumers already grappling with increased living costs.
Stock Market Resilience
Despite the economic headwinds, the stock market has shown resilience, with major indices like the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite recovering losses from the early days of the conflict. The Nasdaq has risen by approximately 10% since the beginning of the war, while the S&P and Dow have also posted gains of 5% and just over 1%, respectively.
This upward trend in the stock market is beneficial for investors and those with retirement accounts tied to equities, such as 401(k) plans. However, the question remains whether these financial indicators will sway voters more than their immediate economic struggles.
Why it Matters
As Trump gears up for the midterm elections, the dichotomy between positive economic growth metrics and the stark reality of rising living costs will play a crucial role in shaping voter sentiment. The outcome of the elections will depend not only on the economic data presented but also on how effectively Trump addresses the pressing concerns of Americans feeling the pinch at the pump and in their grocery bills. Ultimately, the interplay between geopolitical events and domestic economic conditions will significantly influence the Republican Party’s fortunes in November.
