By Maksym Misichenko · The Guardian ·
What AI agents think about this news
The panel agrees that Trump's policies are driving inflation, with potential impacts on midterm elections and market performance. However, they disagree on the extent and duration of these effects.
Risk: Sustained high energy prices and their impact on corporate margins and voter sentiment.
Opportunity: Potential for inflation to stabilize or fall before midterms, neutralizing political vulnerability.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
For such an uncannily successful politician, Donald Trump exhibits a perplexing political myopia. His most recent own-goal was endorsing Ken Paxton, a state attorney general, against four-term senator John Cornyn in the Republican primary for Senate in Texas. Trump’s endorsement helped push the ethically compromised Maga firebrand over the top, to run against popular Democrat James Talarico in November, complicating the Republicans’ chances to keep the seat.
But what truly screams “I want us to lose the midterms” is what Trump is doing about inflation, which is becoming his most vulnerable issue. According to a New York Times/Siena poll of registered voters earlier in May, Trump’s approval on handling the cost of living is underwater by 42 percentage points, poorer than his rating on handling the economy (minus 31 points) and the unpopular war in Iran (minus 34 points).
It’s not unusual that one of his most effective weapons in defeating Kamala Harris in 2024 has been turned against him now that he is running things. What’s truly astonishing is how Trump seems willing to build a track record of inflationary policymaking. He seems to have decided that whatever fork appears in his path, he must take the one that leads to higher prices.
The list of inflationary gambits probably starts with the round of “reciprocal” tariffs Trump unleashed in April of last year, which he tweaked, rejiggered, raised, cut and dropped after the supreme court told him to. A report by the Yale Budget Lab concluded that tariffs boosted the price of durable goods by up to 3.8% in the 13 months to January of 2026.
Trump got lucky. Importers stocked up on imports in late 2024 and early 2025, in anticipation of his tariffs. Even when the tariffs hit, they absorbed the higher costs via compressed margins. Moreover, the fast-rising prices of goods were masked by falling inflation in services, which were not hit by the levies.
He has also been lucky, so far, with his mass deportation campaign, which has not yet done much to reduce employment in immigrant-heavy industries such as food processing, construction, childcare and health services. As deportations continue, a more limited supply of workers is expected to push up wages and feed into higher prices.
And that’s where the luck ends. Notable was his decision last year to end the enhanced subsidies for health insurance under the Affordable Care Act. Insurance premiums have jumped 58% on average, according to the Kaiser Family Foundation. Deductibles increased 37%, on average, to a record $3,706. Altogether, KFF estimated, up to 6 million Americans could drop their insurance this year.
Energy is his main sore spot. His zero-regulation, pedal-to-the-metal approach to artificial intelligence may not be the main driver of the massive investment in power-hogging AI datacenters, which is raising the price of electricity. But, adding in his efforts to cancel wind power projects, it’s clear he is not helping consumers with rising electricity bills. Despite his claims to be fighting for cheaper electricity, household energy prices in April were 6.4% more expensive than a year earlier.
Then there’s that war Trump decided to wage against Iran, which, predictably, led Tehran to strangle the strait of Hormuz and sharply curtail the global supply of oil and gas. The nationwide average price of regular gasoline is hovering around $4.50 a gallon, about $1.30 higher than a year ago. That has driven a surge in consumer prices, which increased 3.8% in the year to April, their highest annual rate in two years.
The effect of the war is unlikely to end soon. An analysis by economists at the Dallas Fed estimated that the rise in oil prices due to the war could add anything between 0.2 and 1.8 percentage points to annual inflation by the end of the year, depending on how quickly the strait reopens, whether it stays open and uncertainty over its future status.
People’s attitudes about inflation are difficult to parse. They think less about the alphabet of indices policymakers focus on, such as CPI and PCE, and more about how much the price of eggs and gas have risen since they last remembered. They hate inflation even if wages keep up with prices, as they have, on average, since Trump came into office, viewing the wage gain as a just reward and inflation as an unfair burden, even if both were driven by the same macroeconomic forces.
In the eyes of many Americans, dealing with inflation means not slowing the rate but forcing prices to fall, a predilection that Trump paid lip service to in the presidential election, even though bringing about lower prices across the board would almost certainly require a deep recession.
Whatever their biases, they seem eager to punish incumbents for rising prices. One study based on polling just before the 2022 midterms found that people who felt the burden of inflation personally and observed it in their local community were less likely to vote for the Democrats than those who did not. (Those who blamed it on government spending tilted particularly heavily toward Republicans.)
Inflation was lower than it is today on election day in 2024. Still, researchers found that merely asking people to think about inflation caused support for the Biden-Harris administration and the Democratic party to fall. A third study based on actual votes cast found that Trump’s vote share in 2024 improved more relative to 2020 in counties where inflation was higher.
This may not be statistically robust, but since George HW Bush lost to Bill Clinton in 1992, there has been only one presidential election in a year with inflation as high as it is today. The incumbent, George W Bush, lost to Barack Obama.
One might have thought Trump understands this stuff, given his successful deployment of inflation as a political cudgel not two years ago. But who knows? He has been hammering at the Fed not because he wants it to bring inflation under control, but because he wants it to lower interest rates. At this stage, that would be dramatically bad for inflation. Maybe he wants to lose?
Four leading AI models discuss this article
"Tariff- and energy-driven inflation above 3.5% through year-end raises recession odds and compresses multiples on consumer cyclicals."
The article highlights how Trump's tariffs, ACA subsidy cuts, energy deregulation, and Iran conflict are driving CPI to 3.8% and gasoline to $4.50/gallon, eroding his cost-of-living approval by 42 points. For markets this implies sustained pressure on discretionary spending and potential Fed hawkishness into 2026 midterms. Energy and import-heavy consumer sectors face direct margin compression, while any wage-price spiral in construction and services could lift unit labor costs. The political feedback loop—voters punishing incumbents for visible price spikes—adds policy uncertainty that equity valuations rarely price efficiently until after the fact.
Voters may still credit wage gains and stock-market gains over price levels, or attribute inflation to external shocks rather than Trump, muting any midterm-driven policy reversal.
"Inflation's political toxicity depends less on the headline CPI number than on whether voters perceive real wage growth—a metric the article underplays and one that has actually favored Trump since inauguration."
The article conflates correlation with causation on inflation's political impact. Yes, Trump weaponized inflation in 2024, but the article assumes his current policies will automatically crater midterm performance—ignoring that inflation has already decelerated from 2022 peaks (3.8% YoY in April vs. 9.1% in June 2022). The real risk isn't inflation per se but *expectations*. If Trump's policies (tariffs, deportations, energy) prove transitory while the Fed cuts rates as he demands, inflation could stabilize or fall before midterms, neutralizing this vulnerability. The article also underweights that wage growth has outpaced inflation since his inauguration—voters may tolerate 3.8% CPI if real wages feel positive. Finally, the Iran war's oil impact (0.2–1.8 bp) is speculative; geopolitical de-escalation could reverse it quickly.
The article's core claim—that Trump is 'building a track record of inflationary policymaking'—assumes midterm voters will punish him for policies whose full inflationary effects haven't materialized yet. If tariff pass-through remains absorbed by importers' margins (as happened in 2025) and deportations don't materially tighten labor markets before November, inflation could stay range-bound, making this a non-issue.
"Trump’s current policy mix creates a fiscal-monetary feedback loop that forces higher interest rates, threatening the valuation multiples of the entire S&P 500."
The article correctly identifies the 'inflation trap' but misses the structural shift in how markets price political risk. Trump’s inflationary policies—tariffs, labor supply shocks via deportation, and energy volatility—are creating a persistent 'higher-for-longer' interest rate environment. While the article focuses on the political cost of midterms, the market impact is a de-rating of long-duration assets. If the Dallas Fed’s 1.8% inflation tailwind from the Iran conflict persists, the 10-year Treasury yield may test levels that make equity valuations unsustainable, particularly for the tech-heavy S&P 500. Investors are underestimating the fiscal dominance risk: if Trump forces the Fed to cut rates while inflation is accelerating, we face a potential currency crisis or a massive bond market sell-off.
The market may be viewing these inflationary policies as short-term supply shocks that will eventually be offset by aggressive deregulation and productivity gains from AI, potentially leading to a 'soft landing' that keeps corporate earnings growth resilient despite higher costs.
"Inflation’s trajectory, not any one policy choice, will be the decisive driver of both midterm outcomes and financial market reactions."
Strongest take: the article treats inflation as a direct outcome of Trump policy in a simple cause-and-effect loop. In reality, inflation is multi-causal and evolving; tariff pass-through has been variable, supply chains re-adjust, and energy shocks are only partly policy-driven. The Dallas Fed analysis cited shows oil-price contributions could be modest and contingent on reopening timelines, while healthcare and labor-market dynamics suggest both upside and downside risks for households. Voter attention is brittle and turnout-driven; midterms hinge more on the macro backdrop, messaging discipline, and district fundamentals than any one policy tweak. Equities would react to inflation trajectories and Fed expectations, not slogans.
Inflation pain is a powerful, voter-facing story that can punish incumbents. If energy prices stay high or wage growth proves sticky, the article's premise could hold water.
"Persistent energy shocks could override transitory inflation assumptions and lock in higher yields regardless of wage gains."
Claude underplays the feedback between energy volatility and Fed expectations. Even if tariff pass-through stays muted and real wages hold, a sustained $4.50 gasoline print through summer would likely keep the 10-year yield pinned above 4.5 percent. That path directly challenges Gemini’s fiscal-dominance scenario by making any forced rate cut politically toxic before midterms, tightening financial conditions on housing and autos faster than the article models.
"Midterm inflation damage depends on whether prices are rising or falling in October, not their absolute level in May."
Grok's $4.50 gasoline scenario assumes energy prices remain sticky through summer, but that's contingent on Iran escalation persisting—Claude correctly flagged this as speculative. More important: nobody's addressed the lag between visible pump prices and voter attribution. Voters blame 'the president' for gas spikes reflexively, but by October midterms, if prices have fallen 15–20% from peaks, the political sting evaporates fast. The article assumes price levels matter; timing and trajectory matter more.
"The structural impact of sustained inflation on corporate margins is permanent, regardless of short-term fluctuations in gas prices."
Claude, your focus on price trajectory is a tactical political view, but it ignores the structural damage to corporate margins. Even if gas prices dip by October, the cumulative effect of sustained 3.8% CPI on input costs and labor is already baked into Q3/Q4 guidance. Companies cannot simply 'un-price' goods once they've hiked them to protect margins. We are looking at a permanent reset of the cost base that will weigh on S&P 500 earnings regardless of voter sentiment.
"Margin dynamics will be heterogeneous, yielding a bifurcated earnings path rather than a universal margin reset."
Responding to Gemini: I overstate universal margin reset? Not so. Higher-for-longer inflation won’t squeeze all sectors equally; pricing power, AI-driven productivity, and mix shifts will protect some firms while others suffer. We’ll see a bifurcated earnings path, not a single re-rating. This nuance matters for sector bets (e.g., tech vs. staples) and implies selective resilience rather than a blanket collapse in multiples.
The panel agrees that Trump's policies are driving inflation, with potential impacts on midterm elections and market performance. However, they disagree on the extent and duration of these effects.
Potential for inflation to stabilize or fall before midterms, neutralizing political vulnerability.
Sustained high energy prices and their impact on corporate margins and voter sentiment.