The Federal Reserve raised the ire of President Trump upon raising interest by 0.25 percentage points — the first such hike in three years — ahead of the Midterm elections. The goal: Cool inflation, amidst reports of 5.1 percent GDP growth and full employment. Critics, however, point out that the skyrocketing price of fuel is akin to a tax on consumers, who will feel it not only at the pump but in the consumer market as the cost of diesel explodes.
The red lights began flashing as unsecured consumer debt broke records in 2025 and the labor participation rate fell to a 50-year low in 2026. In addition, full time employment rates have been essentially flat for more than three years. These economic indicators do not suggest a rate hike was warranted as both debt and price shocks are themselves brakes on an overheated economy.
Higher rates also mean mortgages cresting seven percent, which could spell a housing slowdown amidst already unaffordable housing prices. But beyond that, interest rate hikes are a crude instrument with which to tame inflation: It does not address trucks idled as independent operators find themselves under water or neutralize supply shocks tied to tariffs or the Strait of Hormuz closure.
If this were the extent of the warning signs, it would be worrisome enough. But there are other reasons to suggest the federal reserve rate hike will do more harm than good.
For one, the Federal Reserve is acting on the assumption of “full employment“.
That assumption may be flawed.
A Harvard Business School study in 2021 found that tens of millions of job seekers are cut out of the workforce every year because they have an employment gap. Automated Applicant Tracking Software excludes about 90 percent of those who have a gap as little as six months.
When did ATS first come into play at scale? In the aftermath of the 2008 financial crisis where it arguably slowed the recovery and was used by employers to prioritize the hiring of only currently-employed job seekers, according to reporting in the aftermath (~2011).
ATS has been a silent barrier to workforce reentry ever since.
Next came the “Great Resignation“. During the pandemic, millions of people moved out of the cities. Many began working remotely, only to be called back into the office in recent years. By the time President Trump began his second term, companies such as IBM, Amazon and Microsoft were knee deep in the so-called AI transition — laying off more than 700,000 people between 2022 and 2025!
Next, thousands of federal workers were forced into early retirements and layoffs — with many reporting a year later that they remain unemployed. Against this backdrop, the “male recession” accelerated: According to Labor Department data, the labor participation rate for men 20 years and older was 69.5% in May 2026, compared to 76% in May 2006. Whether college educated or not, the unemployment rate among men has now reached parity. Meanwhile, 98 percent of hiring went to women, per the latest jobs numbers.
In 2020 and 2021, Diversity Equity and Inclusion in hiring became a top priority for Fortune 500 firms following the George Floyd/Black Lives Matter protests. Federal reserve data indicates that ever since the white male represents the actual diversity hire.
Cumulatively, these trends suggest employment assumptions are flawed and have been for a long while. (The long-running theme of economist John Williams‘ “Shadow Statistics” website, for whom the disparity between the federal government’s broadest “U-6” measure of unemployment, at about seven percent, may be off by as much as ~20 percent.)
Undoubtedly, these job losses play a role in the labor participation rate decline too. Unfortunately, little of this factored into the newly-appointed Federal Reserve Chair Kevin Warsh’s thinking because the labor participation rate declines are predominantly thought to reflect only demographic changes associated with baby boomer retirements.
The truth is more nuanced.
It is not just retirees exiting the labor market — but working-age Americans who find themselves on the outside looking in, yet for statistical intents and purposes are no longer count as unemployed after “giving up” on looking for work in as little as four weeks. This “data masking” could very well spell trouble.
The structure of the economy is also fundamentally different than it once was.
How often have we heard that consumer spending accounts for nearly 70 percent of the economy? Today, about half of consumer spending is driven by the top 10 percent of income earners. As such, they account for disproportionate impacts in the data, to which the fed effectively caters, while representing only a small subset of economic reality for the country at large.
The consumer is 70% of GDP. This is true. But more than half of consumer spending belongs to categories that have essentially the same growth rate in expansions and recessions. They do not signal where the cycle is heading, and they can even mask the trends that are really developing beneath the surface.
ERIC BASMAJIAN, EPB Research
Consumer debt loads tell the other half of the story: By Q4 in 2025 — before the Iran war! — it had already reached a record $18.8 trillion. Raising interest rates when the high cost of energy and the “consumer debt drag” is effectively already serving the purpose is akin to pouring lighter fluid on a fire.
Finally, the Bureau of Labor Statistics has itself caused a number of raised eyebrows in recent years, announcing positive job gains coming out of the pandemic only to scale them back — to the tune of nearly one million jobs during Biden’s last year of office. While reporting a fantastic economy, many Americans told pollsters they felt they were in the midst of a recession. For all the hopes the Trump Administration would change that, 2025 was matched only by 2003 (recession) for job growth after BLS revised the data — adding a paltry 181,000 jobs for the entire year.
All of this comes full circle to suggest that the fed should have held rates steady — if not cut them as Trump suggested.
But the Federal Reserve is only as good as its data, and officially the Trump economy is robust enough to warrant a rate hike. In addition to a strong jobs report, the data says childhood poverty has plummeted and median wages now exceed $87,000.
Never mind the energy crisis ax hanging over our heads!
Voters see things differently, with polls suggesting not only that the Democrat party may retake a majority after the Midterm elections but that the Democratic Socialists of America stand to make record gains.
If the polling is to be believed, voters are less concerned about the $200T+ price tag of the DSA’s “free stuff” campaign — or the fact that “tax the rich” would scarcely cover the cost of such largess. It is believed, rather, that independents and a percentage of Trump’s base, frustrated over the war in Iran, will simply sit out the election.
Will handing a majority to Democrats and the DSA result in a better outlook for Americans’ pocketbooks?
Doubtful.
The war in Iran is its own creature now, with Iran motivated to rebuild its bombed out country in part by levying a toll on every ship that passes through the Strait of Hormuz — with or without further provocation to blame.
At the beginning of the year, by contrast, the Trump Administration was looking at a far different picture in Iran. Tens of thousands of protestors seemed to be on the precipice of overthrowing their religious regime — until that regime began murdering dissidents en masse. Nevertheless, the Trump Administration promised to help, and citing nuclear threats they did.
Success in Iran could mean many things, not the least of which includes a reduced military threat tied to a dismantled nuclear program. It could mean a free Iran, something Iranian expats have been awaiting for more than 40 years. It could even mean radically reshaping the global economy in the U.S. favor — to snatch the petrodollar from the jaws of defeat — as President Trump recently alluded to when he remarked that the U.S. may “take the oil” from Iran. (Far from being a new comment, this was Trump’s stance predating the Bush administration wars in Afghanistan and Iraq.) Since then, this playbook has been demonstrated in Venezuela: A ruthless dictator is out, and an oil deal is in — a win-win for Venezuela and U.S. economy, respectively.
As the midterm elections bear down on us, however, it appears Iran is in it for the long haul — no doubt hoping that American voters will help them turn the tables on Trump. That would mean not only a return of impeachment drama after the elections but potentially, too, the “fossil fuel transition” (Green New Deal).
Did we forget how rapidly the Biden Administration worked to cancel the Keystone XL pipeline, deny drilling permits, implement a “pause” on Liquified Natural Gas (LNG) exports and to sell off the Strategic Petroleum Reserve to make up for a public that had begun to express frustration over 40-year high inflation?
Apparently we did forget. Because those who are highly motivated to show up at the polls to deliver President Trump a black eye will usher in more than a referendum on whether he ends his presidency as a lame duck. Their votes will help put steep tax increases and a policy war aimed at fossil fuel back on the table. Meanwhile, no matter how Congress votes on the War Powers Act to extricate us from Iran, extrication is not a given. Even if it were, an incomplete job on the part of the Trump Administration will only accelerate the loss of the dollar as the world reserve currency.
It’s a risk Americans can’t afford to take.
Given the reality of $40T in debt, with $1T in interest tacked on every ~100 days, losing the petrodollar to a de facto victory on the part of Iran — as Trump spends the remainder of his presidency distracted by domestic drama — could mean losing control of inflation once and for all.
So what will happen if independents and disaffected MAGA voters sit it out in November?
The equivalent, arguably, of jumping from the frying pan to the fire where a cost of living crisis is concerned.
As it turns out, there is more than one road to the same economic ruin: We can resume the Green New Deal in attempt to reach net-zero/Paris Accord climate targets. Absorb crushing tax hikes at all income levels to support the “Socialist New Deal”. Or we may continue to see geopolitical conflict disrupt supply chains, but without hyper-inflationary DSA detours. If we are not careful, however, Midterm election outcomes will favor the worst of all worlds: Climate war, Iran war, trade war, AI war and a DSA-backed war on private property and wealth — an “all crisis” scenario if ever there was one.
Can anybody afford this?
If not, show up and vote!
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SOURCES
The Petrodollar System: How It Was Built, Why It’s Under Threat, and What Collapse Would Mean for America | Political.org
Navarro to Newsmax: Warsh Rate Hike a ‘Rookie Mistake‘ | Newsmax
Diesel Prices Surge As Harvest Fuel Costs Climb | All Ag News
How diesel prices and pending truck rules could hike your grocery bill | USA Today
Energy markets under chokepoint stress: The 2026 Hormuz shock | VoxEU