It’s inflation, stupid: Trump faces the wrath of US voters

On Tuesday the United States will hold a referendum on Donald Trump. The Republican Party has become the Trump Party, which means the careers of dozens of Republican politicians are tethered to him. The party of Abraham Lincoln depends on a man cut from very different clobber. If the polls are to be believed, “The Donald” is over, with ratings the lowest ever for a sitting president heading into the midterms. Across a whole host of economic and foreign policy matrices, Trump’s support is dwindling. If he loses, US politics could become even more divided, which is almost impossible to imagine. The divisions will be most acute within the Republican Party, which would undergo its second civil war in a decade. The first war was fought to get Trump in; the next one will be fought to get him out. No one said this was going to end well. Indeed, the party’s civil war is unlikely to end when Trump leaves office. His influence is likely to mutate into something possibly even more divisive as he tries to make sure that his chosen Make America Great Again (Maga) successor maintains his legacy and keeps his sons out of jail. Meanwhile, the US will be left with the largest debt burden in its history, which is being added to every year with a huge budget deficit funded by issuing yet more debt. While not quite a Ponzi scheme, the US is moving in the Ponzi direction. By paying the interest on the debt by raising yet more debt, even Washington is vulnerable. What happens to the dollar if the foreigners who are buying this US debt, and in the process help keep the dollar pre-eminent, decide to cut their positions before those positions become losses? READ MOREMedium-term worries about US debt splurges are becoming more acute by the week. But for Tuesday’s plebiscite, the immediate issue is prices, particularly petrol prices. To paraphrase James Carville’s “it’s the economy, stupid” maxim from 1992, in 2026, “it’s inflation, stupid”. Inflation has been rising in the US, squeezing the car-driving suburban middle classes. At the same time, the one thing that really makes Americans feel wealthy – the price of their homes – has been going in the wrong direction. The median house price dipped to $419,250 in September 2026 (down 1.2 per cent year-over-year), marking 11 consecutive months of declines as sellers slash asking prices. About one fifth of all houses listed on the market have seen their asking prices fall in the last year. This affects the perception of wealth among the 61 per cent of Americans who own their own homes. The fact that the Democrats – a party in disarray – hold a 9-point edge over the Republican Party among likely voters, with 53 per cent of them saying they are voting or leaning towards the Dems, tells you how far Trump has fallen. What’s going on?The US is experiencing what economists call a K-shaped economy: the gains of the growth are going to the richest people, while those at the bottom fall behind. The reasons are that the tax system has been changed to reward those at the top and the stock market, owned far more by the richest Americans, has been soaring. For example, over the past four years since the end of the pandemic, house prices have flatlined but the Standard & Poor’s 500 index is up 131 per cent. The profits from the US tech boom have largely ended up in the pockets of the already wealthy, while real wages have fallen and tariffs imposed by Trump have increased the price of imported consumer goods, squeezing the middle earner that bit more. [ What happens in Israeli and US elections may reshape the Middle EastOpens in new window ]A lot, but not all of this, is Trump’s fault. His war in Iran was a turning point. Americans are not usually too bothered by foreign policy, but the immediate increase in petrol prices when the Strait of Hormuz closed has tied Trump to faltering disposable income. With higher energy prices pushing up inflation, the average dude on the street copped it. Even his once loyal supporters have gone off him since February. Only 67 per cent of 2024 Trump supporters now approve of him, down from 75 per cent in July, 83 per cent at the beginning of this year and 95 per cent early in his second term. With energy prices rising, the Federal Reserve could not cut interest rates, even if Trump wanted it to. Almost the first thing Kevin Warsh, Trump’s Federal Reserve chair appointee, did was raise interest rates, pushing mortgage rates to 7.3 per cent from 6 per cent this time last year. All these little increases in prices or interest rates hurt and dent the feel-good factor. Electricity prices are also rising, and Trump – an AI evangelist – is being associated with data centres that are gobbling up the grid’s capacity, so the price the average person pays for electricity is perceived to be strongly affected by AI companies. This is not a good look for a populist president, not least because the tech-bro aristocracy who run Silicon Valley are among the most despised groups in US popular culture. Speaking of culture wars, some heat has been taken out of issues like immigration. The president’s policy has been successful in the sense that illegal immigration has plummeted. Immigration was the top problem for 28 per cent of Americans in Gallup’s Feb 2024 poll, when worries about the economy and inflation were 12 per cent and 11 per cent respectively. By September 2026, only 10 per cent of Americans picked immigration as an issue. Economic worries keep more than a third of voters awake. [ Fed holds US interest rates ahead of midterm electionsOpens in new window ]If the polls are right, is this the end of the Trump era, in the sense that he ceases to be the central character in US politics? If he loses both the Senate and the House, the presidential race starts. A battle for the heart and soul of the Republican Party will ensue between the baseball cap and the golf club, between Maga and penny-loafer America. It is a great opportunity for the Democrats, but that party is riven by a generational war – the Clintonistas versus the Zoranistas, the old versus the young, the radical sons versus the centrist dads. Take your seats, the main event hasn’t even started yet.