As the United States heads towards the pivotal midterm elections in November, voters will be assessing former President Donald Trump’s economic stewardship against a backdrop of escalating conflict and rising living costs. Despite a recent surge in economic growth, the ongoing war in Iran and its impact on energy prices could overshadow these figures, influencing how Americans cast their ballots.
Economic Growth: A Silver Lining?
Recent data released this week indicates that the U.S. economy grew by an annualised rate of 2% in the first quarter of 2026, a welcome rebound following a slowdown at the end of 2025. This growth comes amidst a challenging environment marked by the war in Iran, which has led to significant increases in consumer prices.
While many Americans are feeling the pinch from tariffs and inflation, experts suggest that the overall economic boost can be attributed to substantial investments from tech companies in areas such as artificial intelligence. James Knightley, chief international economist at ING, emphasised that as consumer spending wanes, “investment linked to tech and AI has clearly become the main engine of growth in the US”.
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 surge in oil prices, with Brent crude reaching a four-year high of $126 per barrel before settling at around $111. This increase has translated into higher fuel costs, with petrol prices soaring to $4.30 (£3.17) per gallon by the end of April, compared to less than $3 in February.
This spike in energy prices has contributed to rising inflation, with March’s annual inflation rate climbing to 3.3%, the highest it has been in nearly two years. The combination of rising prices and stagnant wage growth is likely to weigh heavily on voters’ minds, potentially altering their perception of Trump’s economic policies.
Interest Rates and Market Performance
The Federal Reserve’s response to the economic landscape has also been closely monitored. In light of the rising inflation driven by the war, the central bank maintained its base interest rate at 3.5% to 3.75%, dashing hopes of imminent cuts. The average interest rate on a 30-year mortgage has increased from 5.98% to 6.3%, making borrowing more expensive for many Americans.
However, the stock market has shown resilience despite the ongoing turmoil. Major indices such as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite have rebounded from early losses, with the Nasdaq gaining around 10% since the onset of the conflict. This positive performance could bode well for investors and those with retirement savings tied to the stock market.
Political Implications Ahead of Midterms
As the midterm elections draw near, the question remains: how will the economic landscape influence voter sentiment? The Republican Party’s fortunes, particularly Trump’s, may hinge on public perception of the economy. While positive GDP growth and a recovering stock market are encouraging, the stark reality of rising living costs could undermine the party’s message.
With many Americans prioritising their day-to-day financial struggles over broader economic indicators, Trump’s ability to connect with voters on these issues will be crucial. The ongoing conflict in Iran, alongside its implications for energy prices and inflation, will play a significant role in shaping the electoral outcome.
Why it Matters
As voters prepare to make their decisions, the juxtaposition of economic growth against a backdrop of rising costs will test the resilience of Trump’s economic narrative. The outcome of the midterm elections may ultimately hinge on whether Americans feel secure in their financial futures amidst the challenges posed by global conflicts and domestic inflation. The next few months will be critical in determining not only the future of Trump’s political ambitions but also the broader economic trajectory of the nation.