The U.S. economy experienced a turbulent 2025, but economists are optimistic about a more robust 2026.
Key drivers include President Donald Trump’s tax cuts, reduced tariff uncertainty, ongoing growth in artificial intelligence, and a late-year series of Federal Reserve interest-rate cuts.
Consumer spending, a cornerstone of the American economy, is expected to benefit from larger tax refunds and smaller paycheck withholdings.
Trump’s “One Big Beautiful Bill” also provides businesses with tax credits and write-offs for investments, which may fuel capital spending beyond AI-focused initiatives.
“The boost from fiscal stimulus alone could add one-half percent or more to first quarter GDP growth,” wrote KPMG chief economist Diane Swonk.
Meanwhile, the impact of Trump’s tariffs on prices is projected to peak in early 2026. If inflation pressures ease, wages may outpace prices, strengthening household finances.
Business investment in AI infrastructure appears set to continue, with tech giants like Amazon and Alphabet promising further spending.
This is expected to benefit companies that had previously adopted a “low-hire, low-fire” approach to navigate trade policies and immigration restrictions.
“We expect fading policy uncertainty, the boost from tax cuts and the recent loosening of monetary policy to mean the economy strengthens in 2026,” said Oxford Economics analyst Michael Pierce.
Trump’s second-term policies initially slowed growth, with tariffs raising average import levies from under 3% at the end of 2024 to nearly 17%.
Growth rebounded in the second quarter as businesses and households adjusted to trade policies, accelerating to a 4.3% annualized pace in Q3 thanks to increased spending and AI investments.
The fourth-quarter slowdown is expected due to a six-week federal government shutdown starting October 1, but the reopening is likely to reverse this drag in 2026.
“Growth in 2025 has been resilient despite a substantial drag from trade and immigration policy,” Nomura economists noted. “Now these headwinds are abating at the same time fiscal and monetary policy are becoming stimulative.”
Risks remain, including a weakening labor market, elevated inflation, and the Fed’s internal divisions over which issue to prioritize.
Trump is expected to appoint a new Fed chair when Jerome Powell’s term ends in May, with expectations of a focus on lower interest rates.
The U.S. job market slowed steadily in 2025, with monthly job gains down and unemployment rising to 4.6% in November. Economists noted that government shutdowns may have distorted the figures.
Stubborn inflation could limit additional rate cuts next year, despite muted third-quarter inflation readings that may understate real price pressures.
Household concerns over job security, reflected in the Conference Board’s data, suggest some families may save rather than spend extra tax cut money.
AI-driven business efficiency may benefit companies but not necessarily employees, potentially restraining hiring.
“We expect the unemployment rate to stabilize at 4.5% as hiring picks up on the back of stronger final demand growth,” said Goldman Sachs economist David Mericle. “Further labor market softening is the largest downside risk to our forecast because hiring is starting from a weak place and the promise of AI might restrain it further.”
