With the US midterm elections just weeks away, American households face rising costs across nearly all everyday expenses, from dining out and filling up the tank to purchasing a home, as the Federal Reserve's first interest rate hike in three years further pushes up borrowing costs. The affordability crisis has once again moved to the forefront of the campaign trail, poised to determine which party controls Congress.
Last week, the average 30-year fixed mortgage rate climbed to 6.95%, nearing the 7% threshold and marking the highest level since before Trump's 2025 inauguration; at the start of 2022, that rate stood at just over 3%. The yield on the 10-year Treasury note broke above 5% this week for the first time since 2023, closing Thursday just shy of that level. Futures markets indicate roughly a 50% probability that the Federal Reserve will raise rates again at its October meeting, which takes place just one week before Election Day. Most Fed officials expect one more rate hike before year-end.
US consumer prices rose 3.4% year-over-year in August, continuing five years of price pressures. Over the past five months, wage growth has failed to keep up with inflation, and with gasoline prices spiking sharply in recent weeks, purchasing power this month is expected to lag as well. The unemployment rate remains low at 4.1%. Thanks to a strong stock market, the Federal Reserve reports that household net worth reached $186 trillion in the second quarter of this year, up $26 trillion from the fourth quarter of 2024. Retail sales data for August, released this week, came in stronger than expected, indicating that consumer spending remains robust.
Fed Chair Kevin Warsh explained the rate hike decision on Wednesday, noting that given geopolitical shocks and uncertainty, the resilience of the US economy is noteworthy. However, analysts point out that the impact of rate hikes on inflation takes time to materialize, typically around a year. Rising prices are likely to have a significant impact on congressional races, particularly in districts where Democrats have made affordability a central issue.
David Winston, a veteran Republican strategist and adviser to congressional Republican leadership, said that while wages have grown, they are not enough to convince voters they are better positioned to handle current prices—a core issue in how voters judge Trump and his party's economic promises. Christina Patterson, an economist at the University of Chicago Booth School of Business, noted that workers seeking pay raises often face trade-offs, including negotiations, job switching, or threatening to quit—actions that are costly and disrupt labor relations.
Stacey Hislop, a 64-year-old retiree in Michigan, said her monthly Social Security payment of about $1,900 is not keeping up with rising prices. This year alone, she has withdrawn $2,000 from her savings account, leaving just about $13,000 in the bank. She cancelled a planned road trip to Tennessee and is now trying to sell secondhand items on eBay—including Disney snow globes and 90s-era Tommy Hilfiger clothing—to earn extra income. She said her true nest egg is her fully owned home, but if interest rates rise, the house won't sell quickly. Hislop plans to vote for Democratic state Senate candidate Abdul El-Sayed, whom she views as "not establishment," with fresh ideas and a genuine concern for the local economy.
During his 2024 campaign, Trump aggressively attacked price pressures, promising to cut Americans' energy bills and pressure the Fed into lowering rates. After Wednesday's Fed rate hike, Trump took to social media, saying America is booming thanks to new investment, and calling for "lower interest rates for America, and fast." He later told reporters he supports Warsh but said the Fed chair faces a very tough board. Heather Boushey, a former member of the prior administration's Council of Economic Advisers, said the stock market is not a true indicator of household well-being. The "misery index," a measure of economic distress, currently stands at 7.5, up from 6.7 in October 2024. Inflation peaked at 9.1% in June 2022—a multi-decade high—and while the pace has since slowed, prices continue to climb on top of the substantial increases seen before and after the pandemic. Consumer prices are now 27% higher than in January 2021.
Todd Vasos, CEO of Dollar General, told investors at a Goldman Sachs conference this week that after years of high inflation, middle- and high-income consumers are now behaving more like lower-income shoppers. Once gas prices hit $4 per gallon, Dollar General customers tend to shop more frequently but buy less each time. For higher-income shoppers, he hears more and more that a $100,000 annual salary no longer feels like a high income bracket. Diesel prices have risen even more sharply, with the US retail average reaching a record $6.40 per gallon on Thursday, compared to $3.71 a year ago. In the Northeast, where many households rely on heating oil for the winter, residents are bracing for colder weather. Perkin Simpson, CEO of Generation Power CT, a Connecticut nonprofit, said he expects another record year with more people in need of assistance. The organization offers grants up to $500, but for the first time this year, it cannot cover the minimum 100-gallon home delivery that many suppliers require. Simpson worries that if winter prices climb further, the situation could get much worse.