Voter Concerns Over Personal Finances Could Sway US Midterm Elections: Trump's Economic Policies Under Scrutiny

As a nervous US electorate prepares to vote in the midterm elections, personal finances are emerging as a key determinant of congressional control. Recent polls indicate that President Donald Trump's evolving tariff policies, the ongoing conflict with Iran, and his overall economic management are significant concerns for voters. Many report being impacted by increased prices for petrol and groceries. A Gallup poll from October 29 revealed that half of registered voters consider the economy to be "extremely important" this year, with healthcare costs and the Iran war also ranking high among 11 issues surveyed. Approximately 40% of voters deem income and wealth distribution (44%) and petrol costs (42%) as extremely important.

An Ipsos poll conducted in August found that 47% of registered voters would prioritize the cost of living as the single most crucial factor in their vote. Only 17% approve of Mr. Trump's handling of the cost of living, and an AP-Norc poll indicated that 26% approve of his economic management overall. Furthermore, a Chicago Council poll showed that 71% of Americans believe US tariffs on imports have negatively affected the economy, and 81% stated they have harmed their cost of living.

While not a direct macroeconomic indicator, the Consumer Confidence Survey offers insights into consumer perceptions by measuring attitudes, purchasing intentions, holiday plans, inflation expectations, and outlooks on stock prices and interest rates. Fergus McCormick, senior economist at the Conference Board, noted in October that "consumers continued to express frustration with rising costs," primarily citing the high prices of goods, groceries, and petrol. Although easing petrol prices contributed to a 7.5-point rise in the Consumer Confidence Index to 91.7 in October, confidence remains on a persistent downward trend. Consumers are also planning to reduce spending on goods and services in the next six months, reflecting ongoing inflation concerns.

Despite these anxieties, consumer spending increased at a 3.4% pace in the third quarter, according to Commerce Department data, demonstrating the US economy's resilience amidst energy price shocks stemming from the Iran war. Robust business spending also contributed to US GDP growing at a 3.4% annual pace between July and September. US inflation has notably decreased from its peak of 9.1% in 2022, falling to 3% by January 2025, when Mr. Trump began his second term. Headline inflation reached as low as 2.3% in April of that year. However, inflation accelerated after the implementation of broad tariffs on nearly all trading partners. The disinflationary trend now appears to have stalled, with the Iran war driving up energy prices and AI-driven investments contributing to the situation. Petrol prices accounted for nearly half of the total increase in September when CPI inflation was recorded at 3.7%. Even excluding food and energy, inflation rose by 0.3% monthly and 2.6% annually. It has been nearly six years since CPI inflation was last at 2%.

An Ipsos poll in September revealed that 79% of Americans agreed that petrol prices were higher compared to 38% in February, a significant shift in perception since the onset of the Iran war. The extended closure of the Strait of Hormuz, a critical route for global energy supplies, has driven up international energy costs. Even the US, a leading crude oil producer, has not been entirely insulated. Ukrainian strikes on Russian refineries have worsened the rise in diesel prices, essential for transporting goods. According to automotive group AAA, the average driver is currently paying $4.20 per gallon of petrol, an increase of $1.17 from the previous year. Among the six "swing states" in this election cycle, only Georgia has petrol prices below the national average. Diesel prices have also surged to $6.32 per gallon, up from $3.68 a year ago.

The Federal Reserve was in the midst of an easing cycle when Mr. Trump returned to office last year. While the Fed's interest rate announcements capture headlines, they also influence the 10-year Treasury yield through market expectations and inflation outlooks. The 10-year Treasury serves as the global benchmark for interest rates, impacting car loans, corporate borrowing, and consumer mortgages. Energy-induced inflation, substantial AI buildouts, and significant government debt issuance have put pressure on the bond market recently, pushing yields on 10- and 30-year Treasuries to levels not seen in almost a quarter-century. Concurrently, the Fed has initiated a new tightening cycle, signaling further rate hikes before the year's end. This confluence of factors has negatively impacted the housing market, with fixed 30-year mortgage rates reaching as high as 7.4% before slightly receding to 7.24%, compared to 6.17% last year. Consequently, homebuyers and those refinancing face higher borrowing costs on their monthly payments.

Mr. Trump often points to the stock market as an economic indicator. After experiencing brief declines during last year's tariff disputes and the early stages of the Iran war, major Wall Street indices have seen substantial gains. The S&P 500 has risen over 10% this year, reaching a new record high of 7,818.93 on October 6. However, disappointing earnings reports are fueling renewed investor concerns regarding the AI buildout and its significant investment requirements. AI investment has been identified as a primary driver of this surge. The "Magnificent Seven" stocks – Nvidia, Alphabet, Apple, Amazon, Meta, Microsoft, and Tesla – constitute 34% of the S&P 500. This situation contributes to what economists term a K-shaped economy, where high-income earners who own assets like stocks see their wealth increase, while wage-earning workers fall behind due to rising living costs.