U.S.-China Relations
NextFin News - Donald Trump's approval rating on inflation has collapsed to one in five voters, even as consumer prices re-accelerated to 3.7% in September and the Federal Reserve delivered its first rate hike since 2023 - a policy reversal that leaves the president fighting the very price pressures he promised to eliminate, with the midterm elections three weeks away.
The polling is unambiguous, and it lands on the issue that decided the 2024 election. A survey conducted by research firm Focaldata of 2,275 registered voters, fielded Oct. 2-4 (margin of error ±2.5 percentage points), found that just 28% approve of Trump's handling of jobs and the economy, while his overall approval stands at 34% with 59% disapproving. The inflation rating is the joint-lowest category alongside housing: only two in ten voters approve. More than two-thirds say the economy is headed in the wrong direction.
The timing is what makes the numbers dangerous. Annual inflation, measured by the consumer price index, fell to 2.4% in February 2026 - the low point of Trump's second term - before climbing back to 3.4% in August and 3.7% in September. That is above the 3.0% rate recorded when he returned to office in January 2025, and it marks the last major inflation reading before voters head to the polls on Nov. 3; the October print does not arrive until Nov. 10.
The Federal Reserve responded on Sept. 17, raising the federal funds target range by 25 basis points to 3.75%-4.00% - its first increase since 2023 - in a unanimous 12-0 vote. The updated dot plot signaled at least one more hike before year-end. Chair Kevin Warsh, whom many investors had expected might hesitate to tighten, instead led a committee prioritizing a timely return to the 2% target over external calls for easing.
So the political question is not whether prices are rising. They are, and faster than they were six months ago. The question is why - and how much of it the administration owns.
The Price Level Voters Actually Live In
Headline inflation is a statistic; the grocery bill, the gas pump and the rent bill are the election.
The September acceleration was broad-based. Gasoline prices rose 34.2% year over year in September, up from 27.4% in August, and fuel oil surged 74.2%. The national average for regular gasoline sits around $4.34 a gallon, roughly $1.26 higher than a year ago, according to AAA. Shelter inflation - the largest single component of the index, at roughly one-third of the weight - accelerated to 3.2% from 3.0%. Food inflation has moderated to 2.5% from 2.7% but remains firmly positive.
These are not abstract index movements. They map almost point-for-point onto the categories where voters give the president his worst marks.
The more important number, however, is on the income side. Real average hourly earnings fell 0.3% year over year in August, meaning the typical worker's purchasing power is shrinking even as the unemployment rate holds at 4.2%. The economy added only 29,000 jobs in September, far below the roughly 89,000 economists expected, and the prior two months were revised down by a combined 60,000. Average hourly earnings stand at $37.81, and the labor force participation rate is stuck at 61.8%.
The mechanism is simple and brutal: prices are rising faster than paychecks, and the labor market that once gave workers the leverage to catch up is cooling. When real wages go negative, every trip to the store is a reminder of the administration's record.
Tariffs as a Self-Inflicted Cost Floor
Here is where the administration's policy choices enter the story directly - and where the "it's just energy" defense falls apart.
A study by three New York Fed economists - Mary Amiti, Sebastian Heise and David E. Weinstein, titled "The Anatomy of Tariff Pass-Through into Consumer Prices" - estimated that the Trump administration's 2025-2026 tariffs added 2.9 percentage points to consumer goods inflation by February 2026. Without the tariffs, the researchers concluded, goods prices would have fallen slightly. The paper was issued as a New York Fed staff report in August 2026 and revised in September.
The effect moderated to about 2% by August, after the Supreme Court invalidated tariffs levied under emergency powers and the administration replaced them with a lower 10% import surcharge. But the mechanism is durable as long as the tariffs remain in place: roughly 26% of any tariff increase ultimately reaches consumer goods prices, and nearly 90% of a tariff is reflected in higher import prices - meaning foreign exporters pass almost all of the cost through rather than absorbing it.
The distribution of that pain matters politically. Within the same product categories, prices for the least expensive imported goods rose about one percentage point more than those for the most expensive options. Tariffs are regressive by construction: they consume a larger share of the budget of lower-income households, precisely the working-class voters who delivered the 2024 election.
The Tax Foundation estimated the tariffs raised average household expenses by about $1,000 in 2025, with the burden expected to fall to roughly $820 in 2026 after the Supreme Court ruling. That is not a transient spike. It is a policy-imposed floor under the price level - a permanent elevation of the goods price level that persists until the policy is reversed.
There is also a second-order channel that the headline number understates. Because tariffs raise the price of the cheapest imports most, they pull the entire price distribution upward: domestic producers face less competitive pressure and can raise their own prices. The New York Fed researchers found that even shoppers seeking cheaper alternatives were not spared. The tariff is not just a tax on imports; it is a relaxation of competitive discipline across the whole goods market.
Beth Hammack, president of the Federal Reserve Bank of Cleveland, made the point in a speech to the National Association for Business Economics on Oct. 12:
"Energy has been making headlines this year, with prices rising for oil, retail gasoline, and diesel, but it isn't the whole story."
She added that higher tariff rates have been pushing up costs on the supply side, and that multiple waves of tariff increases have produced a series of cost shocks rather than a single one-time adjustment. She also cited rising demand for artificial intelligence as an additional price pressure - the AI boom is bidding up electricity, data-center construction and skilled labor, adding a demand-side impulse to the supply-side tariff shock.
The Federal Reserve's Bind
The Federal Reserve's response reveals the trap the administration has walked into.
Warsh and a unanimous committee raised rates 25 basis points in September - the first hike in more than three years - and the updated dot plot points to at least one more increase in 2026 and none in 2027. That is the textbook response to inflation running at 3.7% against a 2% target. But it is also a policy tightening into a labor market that is already softening.
The bond market repriced immediately. The policy-sensitive 2-year Treasury yield jumped 13 basis points to 4.93% after the September CPI print; the 10-year yield added 9 basis points to 5.304%, having touched an intraday 24-year high of 5.365%; the 30-year yield rose 5 basis points to 5.61%. Equities sold off: the S&P 500 fell 1.11% to 7,718.94 and the Nasdaq Composite dropped 1.88%, while the Cboe Volatility Index rose 3.73% to 17.50. Gold gained 1.43% to $4,168.50 and the dollar index slipped 0.43% to 102.10.
The transmission channel runs straight through to voters: higher policy rates mean higher borrowing costs on credit cards, auto loans and adjustable-rate mortgages, layered on top of the tariff-driven goods inflation. The administration is simultaneously imposing a cost shock through trade policy and asking the central bank to restrain demand to offset it. It is a policy mix that tightens financial conditions while claiming to deliver relief.
Cyclical or Structural?
This is the judgment that determines the political forecast, and the two components must be separated.
The energy leg is cyclical. The September acceleration was driven largely by oil prices following the Iran conflict - a geopolitical supply shock that mean-reverts when the risk premium exits the crude market. If the Middle East stabilizes, gasoline can fall back toward $3.50 and headline CPI can drop a full percentage point without any policy change. Cyclical shocks self-correct; they are weather, not climate.
The tariff leg is structural. A tariff is a legislated cost wedge between the border price and the shelf price. It does not self-correct; it only ends if the policy is reversed. The New York Fed counterfactual - goods prices would have been flat to slightly negative absent the tariffs - means the administration has purchased a permanent elevation of the goods price level.
The wage side is also structural in the medium term. Real wage growth has now been negative for multiple months, and with the labor market adding only 29,000 jobs a month against a consensus near 90,000, workers lack the bargaining power to run nominal wages above 4% - the pace needed to outstrip 3.7% inflation. A weak labor market is supposed to cure inflation by destroying demand; here it is curing nothing, because the inflation source is a cost wedge, not overheating.
The voter anger is therefore aimed at the structural component, not the cyclical one. Voters do not blame the president for a war-driven oil spike; they blame him for a trade policy he chose. And they are right to.
The Blame Reversal
There is a historical symmetry that sharpens the political stakes.
In 2022, inflation peaked at 9.1% year over year under Joe Biden, and voters turned their anger on the party in power. In 2026, the same mechanism is operating in reverse. A new poll found only 22% of voters approve of Trump's handling of inflation - lower than the 29% who approved of Biden's performance on the issue in the run-up to the 2022 midterms. A separate survey found 65% of respondents lay the blame for stubborn inflation at Trump's feet.
The difference is that the 2022 shock was genuinely exogenous - a global pandemic followed by a war in Ukraine. The 2026 shock is, in its tariff component, self-inflicted. That makes the blame stickier. Voters may forgive a president for a war he did not start; they are less likely to forgive him for a trade policy he chose.
The Counter-Thesis
The strongest case against this reading has two parts, and both deserve a full hearing.
First, inflation would be worse without the tariffs. The argument runs that tariffs reshored supply chains, reduced dependence on adversarial exporters and strengthened national security, so any price effect is the acceptable cost of long-term resilience. A more diversified supply base, on this view, will eventually lower prices through competition and reduced disruption risk.
Second, the energy spike is exogenous. The Iran conflict is not of the administration's making, and no president controls global oil prices. Blaming Trump for $4.34 gasoline is like blaming him for a hurricane. On this view, the September CPI print is bad luck, not bad policy, and the political damage will reverse as quickly as the oil premium fades.
Both points have merit, but neither survives the counterfactual.
On the first: the New York Fed study isolates the tariff effect and finds it is a net addition to the price level, not a substitution for a worse outcome. There is no evidence in the data of offsetting price declines elsewhere in the basket. The reshoring argument is a claim about the future; the price effect is a fact about the present. And the distributional finding - that the cheapest imports rose most - undercuts the claim that tariffs protect ordinary households.
On the second: while the oil shock is exogenous, the tariff shock is not, and the two arrived together. The administration cannot claim credit for an energy policy it did not design while disclaiming responsibility for a trade policy it did. They are the same price bill, and voters read it as one document.
There is also a timing problem for the administration. Even if the counter-thesis is correct - even if inflation falls back to 2.5% by mid-2027 as oil normalizes and the Fed pauses - that recovery arrives after the Nov. 3 midterm. Monetary policy works with long and variable lags; the September hike will not cool inflation until well into 2027. The political pain is front-loaded; the policy vindication, if it comes, is back-loaded.
The falsifying signal is concrete. If core goods inflation (excluding energy) prints negative for two consecutive months while the tariffs remain in place, the structural pass-through thesis is wrong. Equivalently, if headline CPI falls below 2.5% year over year by the first quarter of 2027 with the 10% import surcharge intact, the claim that policy is the binding constraint fails. Watch the goods component of the monthly CPI releases from November through February.
Conclusion: What to Watch
The mechanism cashes out into a clear asymmetry, and it cuts against the administration on every time horizon that matters politically.
In the short term - through the Nov. 3 midterm - the cycle dominates. Gasoline prices and the September CPI print are the freshest facts in voters' minds, and the Fed's September hike keeps financial conditions tight. The base case is that economic dissatisfaction remains the administration's largest vulnerability, with polling partners giving Democrats roughly a 54% probability of taking both chambers of Congress.
In the medium term - 2027 - the tariff structure matters more than the oil price. If the 10% import surcharge stays, goods inflation retains a roughly 2-percentage-point floor, which keeps real wage growth negative unless nominal wage growth accelerates above 4%. That is a structural drag on the working-class households that swung the election. The households that crossed party lines for economic relief are the ones now most likely to reconsider.
The upside case for the administration: the Iran conflict de-escalates, oil falls back below $75 a barrel, and headline inflation drops toward 2.5% by mid-2027, allowing the Fed to pause and real wages to turn positive. The downside case: the conflict widens, oil tests $100 again, and the Fed delivers the second hike it signaled - pushing the 10-year yield toward 5.5% and tipping the labor market into outright contraction, with payrolls falling below zero for two consecutive months.
Short-term, watch the October CPI print due Nov. 10 and the December FOMC meeting, where the committee will publish fresh projections. Medium-term, watch whether the administration extends or reverses the import surcharge after the Supreme Court settlement. Long-term, watch real wage growth: if it stays negative for four consecutive quarters, the political coalition that elected Trump on the economy will have eroded beyond a single election cycle.
This is not a president unlucky with inflation. It is a president who re-imported inflation through policy and is now asking the central bank to clean it up.
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