US Midterm Stakes: High Prices and War Costs Clash with Strong Market Data

Key points

• Inflation has risen to 3.7% from 3% at the start of Trump’s second term, driven by tariffs and the Iran war.
• Gas prices average $4.32 per gallon, up $1.30 from a year ago, with California reaching $6.21.
• The S&P 500 has hit record highs, but this benefits the top 1% while average wages lag behind price increases.
• Mortgage rates have exceeded 7% after the Federal Reserve hiked interest rates in September 2026.
• Polls show nearly two-thirds of Americans believe the country is in a recession, despite low unemployment at 4.2%.

Background

This situation echoes the 2024 election, where Joe Biden faced similar voter dissatisfaction despite solid economic data. The current crisis is compounded by the US-Israel conflict with Iran, which blocked the Strait of Hormuz and spiked oil prices. Previous archive coverage noted that Trump’s 'Liberation Day' tariffs in April 2025 initially raised consumer goods prices by 2.9%, though some were later paused or ruled illegal. The Federal Reserve’s recent rate hike, led by chair Kevin Warsh, reflects concerns that inflation has been too high for too long, impacting borrowing costs for mortgages and businesses.

How outlets are covering it

BBC emphasizes the parallel between Biden’s 2024 struggles and Trump’s current challenges, noting that voters judge the economy by personal experience rather than GDP. The Guardian highlights the 'K-shaped' economy, where stock market gains benefit the wealthy while everyday Americans face higher gas and mortgage costs. Both outlets agree that tariffs and the Iran conflict are key drivers of inflation, but the Guardian provides more detail on the Federal Reserve’s rate hikes and the disparity between wage growth (3%) and price increases (3.7%). BBC notes that Trump’s administration blames Biden for the economic mess, while The Guardian points to Trump’s own policies as primary contributors to current price hikes.

Why it matters

The disconnect between economic data and voter sentiment could determine the outcome of the 2026 midterms. If Republicans lose control of Congress, it may limit Trump’s ability to implement further economic policies, such as credit card interest caps or direct payments. The rising cost of living, particularly in swing states, is shifting support away from the administration, even among some Republicans. This trend could reshape the political landscape and influence future policy decisions on trade, energy, and social spending.

What to watch

The Federal Reserve may continue to adjust interest rates based on inflation trends, potentially impacting mortgage and borrowing costs. Trump has proposed a $5,000 payment to American adults if Republicans retain control of Congress, which could become a key campaign issue. The outcome of the midterms will determine whether the administration can push through further economic measures or face legislative gridlock. Voters in swing states will likely prioritize affordability over macroeconomic indicators, making the election a test of the administration’s ability to bridge the gap between data and lived experience.