From Tax Cuts to Tariff Stability—US Economy Poised for Solid Growth in 2026

‘I’m positive about the economy in 2026, with some reservations,’ says economist Rick Pederson.

People shop on Black Friday at a mall in Hanover, Md., on Nov. 29, 2024. Madalina Vasiliu/The Epoch Times

The turbulence that defined the U.S. economy in 2025 is expected to ease next year.

Following President Donald Trump’s unveiling of his sweeping global tariffs plan, the consensus on Wall Street was that the United States would potentially face a downturn or, at the very least, a stagflation-type scenario: anemic growth, high inflation, and elevated unemployment.

Those economic forecasts had appeared to be materializing after the economy contracted by 0.6 percent in the first quarter. However, in the following months, gross domestic product (GDP) growth rebounded to 3.8 percent in the second quarter and 4.3 percent during the July–September period.

If the Atlanta Federal Reserve’s widely watched GDPNow Model fourth-quarter estimate of 3 percent is accurate, full-year growth will be 2.8 percent—higher than the 2.1 percent Blue Chip consensus.

While surveys continue to highlight consumers’ frustrations with stubbornly high prices, the data show that inflation has steadied, easing to 2.7 percent in November.

In the first year of the president’s second term, consumer prices have risen by approximately 2 percent, compared with an increase of about 6 percent during President Joe Biden’s first year.

Trump’s tariff pursuits have also helped the White House achieve its goal of narrowing the trade deficit.

In September, the U.S. trade gap unexpectedly shrank to $52.8 billion, the lowest level since June 2020. This was driven by a sizable increase in exports and a minuscule rise in imports.

The president has attributed these improvements to his administration’s trade pursuits.

“Tariffs are creating great wealth, and unprecedented national security for the USA,” Trump wrote in a Dec. 27 Truth Social post. “Trade deficit has been cut by 60 [percent], actually unheard of. 4.3 [percent] GDP, and going way up. No inflation! We are respected as a country again.”

Employment conditions, meanwhile, have continued to cool off from the red-hot levels of the post-COVID-19-pandemic era.

The unemployment rate rose to 4.6 percent in November—the highest reading since September 2021. Although this remains historically low, market watchers fear that economic uncertainty could adversely affect payrolls, prolonging the recent trend of a “low fire, low hire” environment.

Although a multitude of headwinds gripped the U.S. economy throughout 2025—the government shutdown, “K-shaped” trends that saw stronger growth enjoyed by the wealthy, and tariffs—the nation shrugged them off.

Looking ahead, economic observers are optimistic about 2026, although with some reservations.

Boom Town

The world’s largest economy could face boom times as a series of tailwinds support the U.S. marketplace.

Goldman Sachs projects next year’s growth will be 2.6 percent.

BNP Paribas and the St. Louis Federal Reserve’s December 2025 Blue Chip Economic Indicators suggest the consensus 2026 GDP growth rate will be 1.9 percent.

“2026 is expected to be a solid year for the economy,” Mark Malek, chief investment officer at Siebert Financial, said in a note emailed to The Epoch Times. “Fiscal stimulus is about to kick in from the One Big Beautiful Bill Act, continued [artificial intelligence capital expenditure], smaller trade deficits, and the Fed.”

White House officials are betting big that fiscal stimulus from the One Big Beautiful Bill Act will be a victory for Main Street and Wall Street, contributing to growth prospects.

President Donald Trump, joined by Republican lawmakers, signs the One Big Beautiful Bill Act into law during an Independence Day military family picnic on the South Lawn of the White House on July 4, 2025. Samuel Corum/Getty Images

“We’re going to go back to the kind of non-inflationary growth where working Americans do better than supervised workers. Lower-income households do well,” Treasury Secretary Scott Bessent told Fox Business earlier this month.

“Main Street, Wall Street can both do well. And my guess is both have a very good year next year.”

The Federal Reserve’s less restrictive monetary policy stance could be another boon for the economic landscape.

Officials lowered interest rates three times in 2025, and the Fed is expected to cut rates at least once more in 2026. While the market has already priced in lower interest rates, they could begin to work their way through the economy as next year progresses.

At the same time, the central bank’s policy path in the second half remains uncertain as the president is expected to replace Chair Jerome Powell when his term expires in May.

“The focus now shifts to thresholds for January and 2026 and whether Powell can credibly signal a pause,” Christian Hoffman, head of fixed income at Thornburg Investment Management, said in a note emailed to The Epoch Times.

“With just one cut penciled in for 2026 and one for 2027, the Fed is threading the needle between risk management and not completely ignoring inflation.”

The continued buildout of artificial intelligence, rising U.S. stock forecasts, and strong household balance sheets could be additional contributors to gross domestic product.

But while there is reason for optimism, there could still be risks ahead, according to Rick Pederson, economist and chief strategy officer at Bow River Capital.

“I’m positive about the economy in 2026, with some reservations,” Pederson said in a note emailed to The Epoch Times.

“I don’t believe a recession is coming for a number of reasons, but that doesn’t mean there aren’t risks. It’s going to be an interesting year. I expect positive economic growth, but it won’t be without a few micro-level surprises.”