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Your guide to what Trump’s second term means for Washington, business and the world
Before the US and Israel launched attacks on Iran in late February many Americans were already strained by the post-pandemic jump in housing, food and healthcare costs, and the compounding effects of Donald Trump’s tariff agenda. Now they face higher petrol prices, too. In the steepest monthly increase since at least 1967, costs at the pump surged by 21.2 per cent in March, pushing overall inflation to a two-year high. Consumer sentiment has since plunged to a record low, according to the University of Michigan — a damning backdrop for a president who campaigned to “make America affordable again”.
The longer the conflict goes on, the deeper the domestic economic fallout will be. Although the US is a net energy exporter, the bottleneck in the Strait of Hormuz has disrupted global fuel supplies and US refiners have raised their prices amid higher demand. Trump’s efforts to blockade the shipping route — a vital artery for oil, gas and other raw materials — will only add pressure. Beyond higher heating and transport costs, soaring fertiliser prices since the war began are likely to feed through to groceries. Rising inflation expectations also point to the US Federal Reserve keeping interest rates higher for longer.
Even so, the US economy remains more resilient than most. The IMF’s latest projections, released on Tuesday, trimmed America’s growth forecast for 2026 by 0.1 percentage points to a solid 2.3 per cent, and still the fastest in the G7. For now, AI investment is propping up activity and buoying domestic stock markets — though a prolonged war could threaten the global chip supply chain on which the nation’s build-out of data centres depends.
But America’s aggregate economic strength is unevenly shared. Lower and middle-income households, which spend a bigger proportion of their budgets on necessities such as food and gasoline, are more exposed to import duties and the Iran war than the asset-rich, who are supported by equity wealth and the tech boom. Hiring had also weakened before the conflict began, with few private-sector roles being created outside healthcare. The jobs market could weaken further as higher costs and uncertainty from the war linger.
The administration can point to some support measures, including tax refunds under last year’s One Big Beautiful Bill Act and, on Trump’s order, a $200bn purchase of mortgage-backed securities by government-sponsored agencies Fannie Mae and Freddie Mac. But their impact is expected to be modest. Meanwhile, a proposal floated by Trump in January to cap credit card interest rates could make matters worse by deterring banks from lending to riskier borrowers. And broader plans to boost housing supply through deregulation will take time to reduce shelter costs.
With cost of living concerns intensifying, House Republicans have reason to worry about November’s midterm elections. Major polls show Trump’s net approval rating turned negative within months of his return to the White House last January, and has continued to slide since, with a further dip since the onset of the war.
Even if the White House can muster further support for households, it will bring little relief without a broader rollback in the price-raising policies that have come to define Trump’s second term. All the while, his administration is working to resurrect the tariff wall that the US Supreme Court knocked down in February. The president shows little sign of easing pressure on the Fed to cut rates — a premature move that could compound inflation. And, there remains no clear plan to end the war. For Americans, that points to one conclusion: the cost of living squeeze is here to stay.
