A nervous US electorate is heading to polling stations across the country for Tuesday's midterm elections, and their personal finances could determine which way control in Congress swings.
Recent polling suggests President Donald Trump's shifting tariff policies, war with Iran and overall handling of the economy will be major issues this week for voters, who say they have been affected by higher prices at the petrol pumps and on grocery shelves.
Half of registered voters rate the economy as “extremely important this year”, with health care costs and the war in Iran also top among 11 issues rated in an October 29 Gallup poll. Roughly four in 10 voters rate income and wealth distribution (44 per cent) and petrol costs (42 per cent) as extremely important.
Forty-seven per cent of registered voters said the cost of living would be the single most important factor in their votes this week, according to an Ipsos poll conducted in August. Only 17 per cent approve of Mr Trump's handling of the cost of living, while an AP-Norc poll found 26 per cent approve of his handling of the economy overall.
A Chicago Council poll also found 71 per cent of Americans think US tariffs on imports have been bad for the economy, and 81 per cent said they have been bad for their cost of living.
Although not a particular macroeconomic data point, the Consumer Confidence Survey measures attitudes, buying intentions and holiday plans, inflation expectations, and where people believe stock prices and interest rates are heading. In this way, it can offer a key insight into perceptions on the economy.
Fergus McCormick, senior economist at the Conference Board, said “consumers continued to express frustration with rising costs” in October, with most references pointing to the high cost of goods, groceries and petrol.
Easing petrol prices saw some recovery in the Consumer Confidence Index, which rose 7.5 points to 91.7 in October, although confidence remains on a long-term and persistent downwards trend. Moreover, consumers are planning for less spending on services and goods over the next six months, reflecting enduring inflation.
Despite this anxiety, consumer spending rose at a 3.4 per cent pace in the third quarter, according to Commerce Department data, showing the US economy has remained resilient amid the energy price shock caused by the Iran war. Strong business spending also accounted for US GDP to grow at a 3.4 per cent annual pace in the July to September period.
US inflation has significantly eased since peaking at 9.1 per cent in 2022, and fell to 3 per cent when Mr Trump began his second term in office in January 2025. Headline inflation fell as low as 2.3 per cent in April that year. But inflation picked up again after he imposed a sweeping set of tariffs on nearly every trading partner.
The disinflation process now appears stalled, and the Iran war has led to surging energy prices couple with AI-driven investment. Petrol prices accounted for nearly half of the all-items increase in September, when CPI inflation clocked in at 3.7 per cent. Even after stripping away food and energy, inflation still gained 0.3 per cent on a monthly basis and 2.6 per cent year on year.
It has been nearly six years since CPI inflation registered at 2 per cent.
Seventy-nine per cent of Americans agreed that prices at the pump were higher now compared to 38 per cent in February, a dramatic shift in perceptions since the Iran war began, according to an Ipsos poll conducted in September.
The prolonged closure of the Strait of Hormuz, a key waterway for the world's energy supplies, has pushed up global energy costs. Even the US, the world's top crude producer, has not been fully insulated. Ukrainian strikes against Russian refineries have exacerbated rising costs for diesel, which powers the lorries that transport food and other goods.
The average driver is currently paying $4.20 for a gallon of petrol today, an increase of $1.17 from the same time last year, according to automotive group AAA. Of the six “swing states” in this year's midterm election cycle, only Georgia's petrol prices are below the national average.
Diesel prices have also soared to $6.32, compared to $3.68 a gallon a year ago.
The Federal Reserve was in the middle of an easing cycle when Mr Trump returned to office last year. While the Fed's announcements on short-term interest rates grab headlines, they also influence the 10-year Treasury yield through market expectations and the inflation outlook. The 10-year Treasury is the global benchmark for interest rates, car loans, corporate borrowing and consumer mortgages.
Energy-driven inflation, the massive AI buildout and heavy government debt issuance have weighed on the bond market in recent months, with yields on the 10- and 30-year Treasury at levels unseen in nearly a quarter century. At the same time, the Fed has begun a new tightening cycle and has raised expectations it will raise rates further before the year ends.
This combination of factors has plagued the housing market, where fixed 30-year mortgage rates climbed as high as 7.4 per cent before pulling back slightly to 7.24 per cent, compared to last year at 6.17 per cent. That means a homebuyer refinancing or purchasing a home would face higher borrowing costs on their monthly payments.
Mr Trump frequently uses the stock market as an economic barometer. After suffering brief dips during last year's tariff row and the early days of the Iran war, Wall Street's major indices have surged.
The S&P 500 has climbed more than 10 per cent this year and hit a new record-high of 7,818.93 on October 6, though disappointing earnings reports are fuelling a new wave of investor concerns over the AI buildout and the massive investment powering it.
AI investment has been cited as the major driver behind the surge. The Magnificent Seven stocks – Nvidia, Alphabet, Apple, Amazon, Meta, Microsoft and Tesla – make up 34 per cent of the S&P 500.
This leads to what economists classify as a K-shaped economy, in which high-earners who own assets such as stocks see their wealth climb while workers relying on pay cheques fall behind as living costs increase.
