Washington (United States) (AFP) – Republicans routed in the midterm elections may need to look no further than Bill Clinton’s 1992 presidential campaign slogan to understand what got them here: “It’s the economy, stupid.” Resurgent inflation driven by the war in Iran and US President Donald Trump’s tariff policies, a stagnant labor market, and widening inequality were key drivers for voters heading into Tuesday’s voting, analysts say. With most households — other than the wealthiest — feeling the pinch of tightening economic conditions, Republicans were always going to have an uphill battle at the polls. “American voters voted with their pocketbooks,” Gregory Daco, chief economist at EY-Parthenon, told AFP. He added that while the economy being front-and-center for voters was “not unique” to this election, it was significant that it was top of mind for a wide array of people. “Almost every voter across all ages, education, ethnicities, political background, all voted with the economy in mind,” he said.
Higher-for-longer inflation was driven by pandemic-era stimulus money and low interest rates. US inflation hit a peak of 9.0 percent under then-president Joe Biden in 2022, after which it began to drop as the US Federal Reserve raised rates once more. Crucially, however, before it could hit the central bank’s long-term, two-percent target, it began to rebound in 2023. Since Trump took office in 2025, it has stayed stubbornly high, driven first by his wide-ranging tariff policies that upended global trade. Then, in late February, Trump launched the war on Iran, sending global energy prices skyrocketing as Tehran’s retaliatory action blocked a key energy transport waterway, the Strait of Hormuz.
Consumer inflation hit a three-year high of 4.2 percent in May and has stayed near that level since. In US politics, high fuel prices can have an outsized effect, and as of Wednesday, Americans were paying, on average, 38 percent more for regular gasoline at the pump, compared to February 28 when Trump went to war. Daco made the point that for most voters, it was not just that prices were high, but that they had been high for more than five years. “It’s a pebble in your shoe, and at first, it’s not hurtful in any way, but over time it becomes a greater and greater irritant, and I think that’s what you’re seeing with inflation,” he said. On the campaign trail, Trump and other Republicans insisted that inflation was not a major issue and that Democrats had invented an “affordability” crisis. With Democrats taking control of the House and Senate, Unicredit’s Jonathan Schroer warned that they still may not be able to tackle the causes of inflation. “Although inflation remains a core Democratic concern, Congress will probably have limited scope to address it, since it lacks the tools to deal with two leading drivers of inflation: the war in Iran and tariffs,” he said in a note.
On the other side of the macroeconomic spectrum, economists have characterized the US labor market by the phrase “low-hire, low-fire” — stable, but with little chance for growth or movement for most people. More importantly, wages have largely not kept up with inflation, meaning that for most workers, they have seen their income erode over the last six months, according to official data. The unemployment rate and job growth have been steady in recent months, but new jobs have been concentrated in just a few sectors, including health care and construction. “If you look at the unemployment rate, most people that want a job have a job,” said Daco. “The problem is they may not be satisfied with the conditions and the terms and the salary and the role they have.” He added that while the data made the labor market look robust, worker job satisfaction was “historically quite low.”
US GDP growth clocked in at a healthy 3.4 percent in the third quarter of 2026, and stocks have boomed since the start of the year, hitting historic highs in recent months. Economists have long warned, however, that the fruits of that growth are not being evenly distributed, with high-income households disproportionately benefiting, and also propping up consumption-led growth. In May, when Wall Street’s major stock indexes were near historic highs, economists at the New York Federal Reserve warned they were seeing a “remarkable increase” in food insecurity in the world’s richest country. They described a “K-shaped economy,” where higher-income households were prospering while lower-income families saw the high cost of living shrinking their economic prospects. “The economy is doing well, but not everybody’s benefiting equally,” said Daco. “And I think that reflects the concentration of growth across certain segments of the economy.”
© 2024 AFP
