Three months ago, the United States launched military operations in Iran, a conflict former President Donald Trump once claimed would conclude in no more than six weeks. Today, the war drags on with no end in sight, triggering a global energy shock that rivals the 1970s oil crises and sending prices soaring across everything from transportation fuel to household groceries. Yet, despite this sustained economic pressure on cash-strapped American households, newly released first-quarter 2026 gross domestic product (GDP) data reveals the US economy has outperformed expectations to maintain steady growth. As November’s critical midterm elections approach, the BBC has analyzed key US economic indicators to unpack what these conflicting signals mean for Trump and his Republican party.
Official statistics confirm the US economy expanded at an annualized rate of 2% in the first three months of 2026, marking a notable acceleration from the slowdown recorded at the end of 2025. This solid growth comes even in the face of two major headwinds: sustained consumer cost pressure from existing US tariffs, which have lifted prices for domestic shoppers, and the sudden energy market disruption sparked by the Iran war. Economists note that the negative impact on consumers was far milder than initial projections predicted, with household consumption growing at a 1.6% annualized rate. Much of the overall growth momentum, however, has been driven by massive capital investment from large technology companies rolling out new artificial intelligence (AI) infrastructure.
James Knightley, chief international economist at ING, explained that as consumer spending growth moderates, “investment linked to tech and AI has clearly become the main engine of growth in the US.”
As the election season heats up, Trump is already leveraging Thursday’s positive GDP figures to frame his economic policy agenda as a success for American voters. But November’s midterm contests are expected to be extremely tight, and Republican political fortunes continue to hinge on the decades-old maxim: “It’s the economy, stupid.” While headline GDP growth is positive, political analysts broadly agree that voter sentiment will be shaped far more heavily by day-to-day cost of living, which has surged dramatically since the war began.
US military action in Iran and the subsequent closure of the Strait of Hormuz, a critical global chokepoint for oil shipments, sent global crude prices skyrocketing. On Thursday, Brent crude, the global benchmark, hit a four-year high of $126 per barrel; while prices have since pulled back to $111, that remains nearly 52% higher than the pre-war level of around $73 per barrel recorded before hostilities began in late February. Data from the American Automobile Association shows that average US retail fuel prices climbed to $4.30 per gallon by the end of April, up from less than $3 per gallon just two months prior.
This sharp rise in energy costs drove a corresponding jump in inflation, with the annual inflation rate reaching 3.3% in March, marking a near two-year high and a sharp increase from February’s 2.4% reading.
The post-war inflation surge has dashed widespread expectations that the Federal Reserve would implement imminent interest rate cuts to support economic growth. On Wednesday, the central bank announced it would hold its benchmark interest rate steady at between 3.5% and 3.75%, a range that has stood since before the conflict began. Pre-war forecasts from most economists had projected multiple rate cuts would be rolled out through 2026. Data from Freddie Mac shows that since the start of US strikes on Iran, the average interest rate for a 30-year fixed mortgage has risen from 5.98% to 6.3%, pushing homeownership further out of reach for many prospective buyers. Samuel Tombs, chief US economist at Pantheon Macroeconomics, warned that sustained high oil prices and expectations of a long-term US blockade of Iranian ports could delay any rate cuts until 2027.
Against this economic turmoil, US stock markets have defied geopolitical risk to post solid gains since the conflict began. All three major US indices – the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite – have fully recovered the steep losses recorded in the first days of the war and resumed their pre-war upward trend. Since the start of hostilities, the tech-heavy Nasdaq has gained roughly 10%, the S&P 500 is up around 5%, and the Dow Jones has climbed just over 1%. Rising stock indices deliver tangible benefits beyond just active investors, supporting the retirement savings of millions of Americans with 401(k) plans and other pensions tied to equities markets.
Heading into November, polling currently points to the Republicans losing control of the House of Representatives, with the Senate also at risk of flipping to Democratic control. Election outcomes will be overwhelmingly shaped by the state of the economy when voters cast their ballots. While strong headline GDP growth and rising stock markets offer some relief to Republican strategists, the persistent upward pressure on household costs remains a major liability for the party. How the election ultimately unfolds for Trump and his party will depend largely on how the Iran conflict progresses: whether the Strait of Hormuz reopens to global shipping, whether energy and grocery prices cool off for American voters, and whether the US economy can maintain its current momentum through the end of the year.