Economy's Grip: How Inflation and War Drove Americans Back to Democrats

At first glance, the shift back to the Democrats appears straightforward. President Donald Trump and Republicans were elected in November 2024 with a mandate to improve the economy. Now, in November 2026, Americans express even greater dissatisfaction with the economic situation than two years prior. As the saying goes, it's the economy, stupid. However, the reality is more nuanced than a simple slogan suggests. The American economy is performing surprisingly well. Unemployment rates are low, reaching a point economists consider "full employment." Consumer spending, the foundation of the US economy, has remained largely robust. Furthermore, the AI revolution is fueling an economic surge projected to be the largest spending boom in modern American history.

If the economy is so strong, why are Americans disillusioned with Republicans just two years after electing them? Inflation has resurged, and voters directly link Trump's signature policies to their financial concerns. These policies include tariffs, lax AI regulation, stringent immigration restrictions, and notably, the war in Iran. "If it weren’t for the war in Iran, this would be a very different midterm election," stated Heather Long, chief economist at Navy Federal Credit Union. The cost of living has significantly impacted Americans, who are still grappling with the substantial price increases across most goods and services since 2021. While inflation had moderated during the final year of Joe Biden's presidency, it wasn't enough to sway voters toward the Democrats in 2024. The anger over the high cost of living has persisted throughout Trump's return to office.

Despite these challenges, Trump and the Republicans presented a compelling economic narrative earlier this year. The US economy saw its strongest job growth in January since 2024, with manufacturing jobs turning positive for the first time in 14 months. Tax refunds from the Republican-backed One Big Beautiful Bill Act began appearing in bank accounts, and mortgage rates dropped below 6% for the first time in three years. The stock market, boosted by AI stocks, reached record highs. Consumer inflation, which had hit a four-year low in April 2025, neared that point again in January and February 2026. However, the outbreak of war with Iran dramatically altered the economic landscape.

Oil prices soared to four-year highs, diesel prices reached record levels, and gas prices hit an all-time high on Election Day. While Americans dislike inflation generally, they react particularly strongly to elevated fuel prices. The constant visibility of gas prices on billboards and the act of filling a tank serve as a weekly reminder of increased expenses. According to Brown University researchers, high gas and diesel prices alone have added $1,150 to the average US household's costs since the war began. As fuel prices climbed, bond yields surged, leading to a rapid increase in mortgage rates, the fastest in three years. After three consecutive years where wage gains outpaced price increases, this trend reversed in March. Rebounding inflation has eroded workers' take-home pay, and the average American's real wages have declined since Trump's return to office.

Americans' dissatisfaction is palpable. It's unsurprising that many recall the economy favorably from Trump's first term, when their earnings stretched further against prices, with wage gains nearly doubling the rate of inflation. This sentiment led to 15 percentage points more Americans favoring Trump over Vice President Kamala Harris as a better economic steward in an October 2024 CNN poll. Biden's net approval on the economy was a dismal -31 points in the final CNN poll before he withdrew from the race. Trump's current economic approval ratings are now worse than Biden's, standing at -46 points according to an October CNN poll.

Trump's second term has been a stark contrast to his first. For many, costs appear to be spiraling, making the American Dream seem unattainable. While the Trump administration and congressional Republicans have blamed Democrats for the economic woes they inherited, some of Trump's policies, particularly the war in Iran, have demonstrably worsened the cost of living. Beyond gas prices, which have added approximately $75 per month to household expenses, other costs are associated with Trump and the Republicans. For instance, the failure to extend Affordable Care Act enhanced subsidies in 2025 caused a 58% average increase in monthly Obamacare premiums this year. Electricity costs rose by 8.7% during Trump's second term. Trump's advocacy for unfettered AI growth, coupled with his immigration policies and tariffs, has driven up auto repair costs by 12.3% since he took office and increased homebuilders' costs by 13.3%. Tariffs alone have added an estimated $820 in taxes for the average American household this year, according to the Tax Foundation. Steven Durlauf, an economist at the University of Chicago, commented, "Let’s say, for the sake of argument Biden totally screwed up: That in no way exonerates Trump. Inflation has been badly managed by Trump. Voters have to place responsibility with the administration’s policies." The evidence suggests voters are indeed placing that responsibility, contributing significantly to the Republican party's losses in Tuesday's midterm elections.

Inflation is only part of the narrative. Many Americans feel economically marginalized. The K-shaped economy, where the wealthy with stock market investments and homeownership are less affected by rising costs than those living paycheck to paycheck, contributes to this sentiment. A significant issue is the lack of accessible pathways to achieve the American Dream, with undersupply in childcare and housing pricing many out. "The middle-class ideal is becoming increasingly unobtainable," noted Durlauf. The job market, while still relatively strong, is not experiencing the boom of the immediate post-pandemic years. While mass layoffs are not prevalent, job seekers face a challenging application process, described as a "lack-of-opportunity job market." In this economic climate, many Americans feel trapped.