Last week, Politico summed it up this way : "President Trump has spent his second term making risky economic bets a way of life." In the piece, the US outlet lists all the risks taken by the occupant of the White House. During his first year in office, he raised tariffs to their highest level in a century, put a brake on immigration, and pressured the Fed to cut rates despite still-high inflation.
All measures that could deliver major shocks to growth, inflation and the labor market. But so far, their effects are far from the fears they sparked. For one thing, it takes time to fully measure the impacts on the economy. And for another, the boom in AI investment spending has somewhat masked it all.
This year, the war in the Middle East is a new bet. Already, prices at the pump are the highest Americans have seen during Donald Trump's two terms. On Sunday, he called it a "small price to pay" (compared with the Iranian threat) in a post published Sunday on Truth Social.
But it is not certain his fellow citizens agree. Donald Trump won on the economy in 2024, lambasting Democrats' record and Biden-era inflation. One marker of his success on that front was supposed to be lower prices at the pump.
Today, the rise in energy prices is all the more problematic because it is not enough for the conflict to end for prices to return to their late-February level. Even if the war stopped tomorrow, it would take weeks to restart production halted by Gulf countries. Output cuts in Iraq, Kuwait, the United Arab Emirates and Saudi Arabia would currently amount to 7 million barrels a day, according to Bloomberg. Meanwhile, the US Department of Energy has already warned that gasoline and diesel prices will not return to pre-crisis levels before the end of 2027.
And if the shock to energy prices is lasting, there is a risk it spreads across the broader economy, and therefore of a resurgence in inflation. Already, the rate cuts by various central banks (the Fed, the ECB, the Bank of England) that had been expected in 2026 now appear off the table. The situation is all the more delicate for the Fed, where inflation has stabilized but at a high level (core CPI has been between 2.5% and 3% for a year).
At the end of last year, affordability (the cost of living) emerged as the central issue for voters. And the Trump administration's lack of results on that front had driven the president down in the polls. Democrats leaned hard on that lever and won several local contests as a result: Mamdani's big win in New York, and the election of Democratic governors in Virginia and New Jersey.
With eight months to go until the midterm elections, the spike in energy prices is only heightening voters' concerns and complicating the equation for Republicans. Losing the majority in Congress would narrow Donald Trump's strength for the rest of his term. In 2018, Democrats retook control of the House of Representatives in that vote.
