Trump’s ‘tortoise’ Economy: Gdp Grows Even As Iran Challenges Loom

President Donald Trump’s economy is still growing, but as Americans bristle at rising gas prices, Republicans are staring at a potential slowdown less than six months before a midterm election that will hinge on the economic outlook.

The Commerce Department on Thursday said gross domestic product expanded at a 2 percent rate during the first quarter of 2026. The preliminary estimate was an improvement from the weak growth of late last year but fell short of economists' forecasts.

At the same time, inflation climbed at its fastest rate in four years in March as fuel costs rose, driven by global shortages in oil and gas. Even stripping away volatile food and energy costs, the personal consumption expenditures index — the Federal Reserve's preferred measure of inflation — jumped at an annual rate of 3.2 percent, well above the Fed’s 2 percent target.

“The economy is a healthy tortoise. It is very slow. It’s very steady. And in terms of this growth rate, it takes a lot to push this economy into sustained inflation,” J.P. Morgan Asset Management Chief Global Strategist David Kelly said in an interview before the report's release. “But we have a growing shock coming out of the Middle East, which obviously threatens the expansion.”

That threat becomes more acute with each day the Strait of Hormuz remains closed, choking off roughly 20 percent of the global supply of oil and gas. And the time crunch is particularly brutal for Trump and Republican leaders who are struggling to make a case to voters for their economic agenda.

The latest POLITICO poll found that a majority of U.S. adults, 53 percent, ranked the high cost of living among their top issues going into the midterm elections. The “poor state of the economy” came in second with 30 percent. And while the White House has sought to drum up awareness of Trump policies aimed at tackling affordability — including attempts to rein in prescription drug prices or expand access to financial services — it hasn’t improved his standing on economic policy.

The White House said the disruptions were only temporary.

“President Trump has always been clear about short-term disruptions as a result of Operation Epic Fury," spokesperson Kush Desai said in a statement. "The March PCE report reinforced the March CPI report, which showed that, despite volatility in energy prices, passthrough effects have been limited and prices of many household essentials have stabilized or declined. The Trump administration remains confident that as traffic in the Strait of Hormuz normalizes, and as America continues to drill, baby, drill, inflation will trend in the right direction.”

The surge in prices has so far been largely contained to industries that are highly exposed to rising energy costs. But over time — particularly if consumer spending holds steady — economists expect more businesses to pass along those burdens to their customers.

Real final sales to private domestic purchasers, which represent the combination of consumer spending and gross private fixed investment, increased 2.5 percent during the first quarter — much of which can be attributed to spending related to artificial intelligence infrastructure and a rebound in government spending after the shutdown this winter. But consumer spending decelerated, and Samuel Tombs of Pantheon Macroeconomics told clients in a note that “stagnation is likely” in the second quarter.

For now, there’s no relief in sight for consumers. Trump’s blockade of the Strait of Hormuz hasn’t broken Iran’s control of the waterway, and oil analysts warn that major supply shortages are imminent. The price of oil hit a four-year high earlier this week amid talk that the U.S. was considering a fresh round of military strikes against Iran.

The price of gas — one of Trump’s top selling points for his agenda prior to the war — is now above $4.30 per gallon, more than $1.10 higher than where it was a year ago, according to AAA. And even though consumer spending has continued to grow at a healthy clip, those spikes are squeezing lower-income consumers who now spend a larger share of their paychecks on gas than they did in 2019, according to Bank of America data.

Democrats are seizing on how the war is affecting pocketbooks.

“Today’s data shows families paid more for food, transportation, and health care in March,” Sen. Elizabeth Warren (D-Mass.) said in a statement. “And gas prices just hit a four-year high. Trump’s promises are in tatters, and Americans are paying the price.”

At the outset of his second term, the outlook for Trump’s economy was strong. The labor market had softened in the final years of President Joe Biden’s presidency, but growth seemed poised to accelerate with the new administration promising to unwind regulations, lower taxes and unleash domestic energy production.

Then-incoming Treasury Secretary Scott Bessent said he expected GDP to rise at a rate of more than 3 percent per year — a clip that could help ease the U.S.’s debt woes — and corporate leaders were bullish about Trump’s prospects.

The economy’s overall output last year fell short of those expectations. GDP increased by just 2.1 percent in 2025 — tame by historical standards — and the Commerce Department’s primary measure of output rose and fell with imports fluctuating as Trump made a flurry of changes to U.S. trade policy after last April’s “Liberation Day” announcement.

But while the president’s agenda has created uncertainty, the economy has performed better than the grim consumer surveys and political polls would suggest.

“Growth is really solid across our economy,” outgoing Federal Reserve Chair Jerome Powell said during a press conference on Wednesday. “Some of that is that consumer spending is hanging in pretty well. The most recent data are good, and some of it is just the apparently insatiable demand for data centers all over the United States.”

There’s “every reason to think that continues,” he added.