As the United States gears up for pivotal midterm elections this November, the electorate’s assessment of President Donald Trump’s economic stewardship is set against a backdrop of significant geopolitical turmoil. With the conflict between the US and Iran now extending into its third month, the war has precipitated an energy crisis reminiscent of the tumultuous oil crises of the 1970s, leading to soaring prices that affect the daily lives of millions of Americans. Despite these pressures, recent data reveals a complex picture of economic performance.
Economic Growth: A Mixed Bag
The first quarter of 2026 has brought a surprising uptick in economic growth, with the US economy expanding at an annualised rate of 2%. This figure marks a notable rebound following a period of stagnation at the close of 2025, suggesting that certain sectors are managing to thrive despite adverse conditions. Analysts have highlighted that this growth is largely fuelled by substantial investments from technology companies, particularly in artificial intelligence and related fields.
James Knightley, chief international economist at ING, noted that as consumer spending has begun to cool, “investment linked to tech and AI has clearly become the main engine of growth in the US.” This shift in economic drivers indicates a potential restructuring of the US economy, wherein technological advancement plays a critical role in sustaining growth.
The Cost of Living Crisis
While the overall growth figure may be encouraging, it belies an underlying crisis for many American households grappling with rising costs. The war’s impact on global oil supply has driven Brent crude prices to peak at $126 per barrel, a stark increase from approximately $73 before hostilities escalated. Although prices have since retreated to around $111, Americans are now facing an average fuel price of $4.30 (£3.17) per gallon, a sharp rise from under $3 in February.
The ramifications of these energy costs have contributed to a significant jump in inflation, with March figures indicating a near two-year high in annual price increases at 3.3%, up from 2.4% in February. As voters prepare to cast their ballots, their perceptions of economic health will be heavily influenced by their daily experiences with inflation, making the cost of living a critical issue for many.
Interest Rates and Financial Markets
The Federal Reserve’s monetary policy response to the ongoing crisis has further complicated the economic landscape. With inflation surging, hopes for imminent interest rate cuts have been dashed, as the central bank opted to maintain its base rate at 3.5% to 3.75%. Prior to the conflict, many economists anticipated a series of cuts aimed at stimulating economic growth.
In the housing market, the average interest rate on a 30-year mortgage has climbed from 5.98% to 6.3% since the beginning of the conflict, making homeownership increasingly expensive. Samuel Tombs, chief US economist at Pantheon Macroeconomics, cautioned that elevated oil prices and the prospect of a prolonged blockade of Iranian ports could delay rate cuts until 2027.
Despite these challenges, the stock market has shown resilience. Major indices such as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite have rebounded from initial losses incurred during the early stages of the conflict, with the Nasdaq achieving a remarkable 10% increase since hostilities began. This recovery provides a silver lining for investors and those with retirement savings tied to the stock market.
The Upcoming Midterms: A Focus on Economic Sentiment
As the midterm elections approach, the Republican Party’s fortunes are inextricably linked to economic sentiment. Trump’s ability to frame his economic policies as effective will be crucial in swaying undecided voters. However, the persistent cost of living crisis poses a significant threat to his party’s chances. Historical political narratives suggest that voters are often guided by immediate economic conditions rather than abstract growth metrics.
The ongoing conflict in Iran, particularly its implications for energy prices and inflation, will play a pivotal role in shaping voter perceptions. If the situation deteriorates further, or if prices continue to soar, Trump’s prospects could diminish despite positive growth figures and a resilient stock market.
Why it Matters
The current economic climate is a litmus test for Trump’s administration as it faces an electorate increasingly concerned with the tangible effects of policy decisions on their daily lives. With the stakes high in the upcoming midterms, the interplay between geopolitical events and domestic economic realities will not only dictate the political landscape but also the broader trajectory of the US economy in the years to come. As voters navigate this complex environment, their responses will ultimately shape the future of American governance and economic policy.