Even Republicans Think the Economy Is Getting Worse

The Bureau of Economic Analysis reported Thursday that the personal consumption expenditures index, the Federal Reserve’s preferred inflation measure, rose at a 3.8% annual rate in April. That was its highest level since May 2023, when inflation was still easing from its summer 2022 peak. Elevated inflation and a worsening economy are not good signs for Republicans, who are now trailing by their largest margin yet ahead of the midterms.

Inflation is a particularly sticky issue because even after it is brought down to stable levels, the prices of goods remain elevated from where they were before the inflation spiked. This phenomenon could be seen in the 2024 election, when inflation was at just 2.2% in the last PCE report before the election, near the Federal Reserve’s 2% target. Despite this, inflation was rated as the most important issue in the lead-up to the election, and Trump’s advantage on the issue helped him win.

The latest bout of inflation will likely have a similar effect in 2026, and possibly even 2028. In the latest RCP Average for the Generic Congressional Ballot, Democrats lead by 7.8 points, the largest lead in the Generic Congressional Ballot this term and significantly larger than Republicans’ 1.9-point lead at this point in 2022, despite similar inflation concerns at the time.

Concerns about the economy are so great that even Republicans are now saying the economy is faring poorly. In the latest Economist/YouGov poll, only 21% overall and 39% of 2024 Trump voters said the economy is excellent or good, while 76% of all voters and 60% of Trump voters said it is fair or poor. And people don’t see it getting better, with 63% saying the economy is getting worse while only 13% say it is getting better.

Betting markets have also increased Democrats’ chances of winning a majority in the Senate since the start of the Iran war. On Feb. 28, the first day of Operation Epic Fury, Democrats had a 40.6% chance, which has now risen to 46%. Though Republicans were also able to redraw maps, adding 9-13 seats to their House majority, Democrats are still significantly favored to win back the House, with a 77% chance.

These factors have hit Trump’s approval hard. On May 26, he hit a record-low approval rating for the term, with a -19 net approval rating – 39.6% approving and 58.3% disapproving. Inflation is his worst-performing issue, where he has a -39.5 net approval rating, with only 28.3% approving.

Compounding the inflation problem is that unlike in 2022, when unemployment was at 50-year lows and bottomed out at 3.4%, it now sits at 4.3%. While not high or a cause for concern on its own, elevated unemployment limits the Federal Reserve’s ability to raise rates as aggressively as it raised them to counter inflation in 2022. Currently, despite new Federal Reserve Chair Kevin Warsh being pressured by Trump to decrease interest rates, futures markets don’t think there is any possibility of a decline in interest rates before the end of the year. In fact, they think there is a 47% chance that the Federal Reserve will increase interest rates by at least 0.25% by the end of the year.

Even if the ongoing Iran negotiations prove fruitful and the war is brought to an end in short order, the inflation report for May will very likely be higher than it was in April. While inflation is not yet near 2022 levels, the combination of rising prices and an unpopular war will put Republicans at a heavy disadvantage in November.

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