US GDP may be more resilient but not the purchasing power of the dollar in the pocket of ordinary Americans, which has sent President Trumps’ approval ratings into decline. Patrick Farrell, Chief Investment Officer at Charles Stanley, looks at what this might mean for US policy going forward.
The evolution of President Trump’s policy agenda will remain a central driver of market sentiment, especially as declining approval ratings and mounting political pressure ahead of the mid-term elections raise questions about the durability of his economic strategy.
Trump’s approval ratings declined steadily throughout 2025, despite resilient headline gross domestic product (GDP) growth. Voter frustration stems less from aggregate economic performance and more from the lived experience of households. The softening labour market has become more visible while at the same time inflation has proven sticky in essential categories such as food and housing. These pressures have eroded confidence in the administration and highlight its political vulnerability heading into the 2026 midterm elections. A policy response is therefore expected.
Against this backdrop, the administration is likely to intensify efforts to spur growth and restore voter confidence before the summer of 2026. The White House understands that voters judge performance less by headline GDP figures and more by tangible improvements in jobs, wages, and the cost of living. Likely policy levers include accelerated deregulation, targeted fiscal support, and selective tariff moderation.
Accelerated deregulation is expected to focus on energy, housing, and healthcare, areas where reduced compliance burdens could lower costs and stimulate investment.
Fiscal stimulus may be more constrained given that much of Trump’s fiscal agenda has already been enacted through the One Big Beautiful Bill Act (OBBBA). However, the administration may seek to pass additional measures aimed at low- and middle-income households to counter perceptions that recent benefits have disproportionately favoured the wealthy.
Tariff moderation represents another potential avenue. Trump has already rolled back duties on agricultural commodities that the US does not produce, and further targeted reductions could ease price pressures and satisfy lobbying groups.
However, effective tariff rates have already been falling since April’s “Liberation Day” as a result of numerous trade deal announcements. Therefore, further losses of tariff revenue would only sharpen concerns about fiscal deficits and long-term sustainability, particularly given already elevated debt levels.
To balance these pressures, Trump may look to increase tariff rates on strategic sectors, allowing the administration to preserve elements of its protectionist agenda while mitigating fiscal fallout. This stance is reinforced by ongoing Section 232 national security investigations into semiconductor imports and parallel probes into robotics and industrial machinery, both launched in late 2025.
Complicating matters further is the Supreme Court’s looming decision on the legality of “reciprocal tariffs” under the International Emergency Economic Powers Act (IEEPA). Should the Court strike down this authority, the administration would lose a significant source of tariff revenue that has been critical in offsetting fiscal costs from the OBBBA. Even so, Trump is unlikely to abandon tariffs altogether. Workarounds could include reimposing similar measures under alternative statutory authorities such as Section 301 of the Trade Act or national security provisions under Section 232, though these paths would be slower and more disruptive to implement.
Overall, the political stakes are high. Republicans hold only narrow majorities in both chambers – 219 to 213 in the House and 53 to 47 in the Senate. Historical precedent suggests the incumbent president’s party almost always loses seats in the midterms, and recent off-cycle elections in Pennsylvania, Virginia, and Tennessee have signalled Democratic momentum. Should Republicans lose control of even one chamber, Trump would face legislative gridlock, effectively becoming a lame-duck president for the remainder of his term. That prospect raises the urgency of delivering visible economic wins in the months ahead.
Trump has been vocal in his criticism about the pace of interest rate cuts delivered by the Fed. As a result, Fed independence has increasingly been under scrutiny by the market. These concerns have been raised on the back of media speculation that suggests Trump-aligned economist Kevin Hassett is the front-runner to be nominated as the next Fed Chair. Hassett’s dovish stance would align with the administration’s preference for pro-growth rate cuts.
However, the Federal Open Market Committee’s voting structure means that even a dovish chair cannot unilaterally dictate policy. Inflation remains sticky and above target, and several regional Fed presidents lean hawkish, making consensus for more aggressive easing unlikely. Markets should therefore be cautious in assuming that a Hassett appointment would guarantee additional rate cuts.
Taken together, these measures represent a calculated attempt to engineer a more favourable economic backdrop by mid-2026, bolstering approval ratings and mitigating the risk of electoral losses that could leave the president politically weakened for the remainder of his term.
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