Experts expect economy to grow in 2026
By Ann Saphir
Reuters
.... A seesaw year for the U.S. economy in 2025 looks set to give way to a stronger 2026 thanks to tailwinds form President Donald Trump's tax cuts, less uncertainly around tariffs., the ongoing artificial intelligence boom and a late-year run of interest-rate reductions from the Federal Reserve.
.....
Among the biggest drivers of a pickup in growth, economists say, are fatter tax refunds and smaller tax withholdings on paychecks that are expected to provide a lift to consumer spending, the backbone of the American economy.
..... Trump's "One Big Beautiful Bill Act" also gives companies a range of credits and tax breaks, including the ability to fully write off expenses form investments, that may fuel capitol spending beyond date centers and other AL-related areas.
..... "The boost
from fiscal stimulus alone could add one-half percent or more to first quarter GDP growth," wrote KPMG chief economist Diane Swonk.
..... At the same time, the impact of Trump's tariffs on prices is projected to peak in the first half of the year. [2026] If price pressures recede, as fed policymakers increasingly believe they will, wages will have more room to outpace inflation, bolstering household finances. Meanwhile, business spending on the infrastructure that powers AI, a key component of economic growth in 2025, looks poised to continue as mega-technology firms such as Amazon and Google parent Alphabet promise more investment ahead.
..... The upshot, better outlook for businesses stuck for much of this past year [2025] in a "low-hire, low-fire" mode as they sought to weather Trump's disruptive trade policies and aggressive immigration crackdown.
..... "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.
..... A stronger economy was a core promise of Trump's presidential election campaign, but as he began his second term in the White House, the economy shrank amid the roll-out of his unexpectedly aggressive tariffs. The average U.S. import Levey shot to nearly 17% in Trump;s first year from less than 3% at the end of 2024, according to Yale Budget Lab.
..... Growth rebounded in the second quarter as the contours of his trade polices became clearer and businesses and households began to adjust. It accelerated further in the third quarter to a 4.3% annualized pace as Americans, particularly those with higher incomes who benefits form the run-up in the stock market, increased speeding and companies poured money into AI.
..... Economists expect fourth-quarter growth to slow substantially, reflecting the impact of the six-week federal government shutdown that began October 1 [2025] but with the reopening they say that drag will reveres in the new year. [2026]
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"Growth in 2025 has been resilient despite a substantial drag from trade and immigration policy," Normura economists wrote. "Now these headwinds are abating at the same time fiscal and monetary policy are becoming stimulative."
..... There are many risk: A weakening labor market, still-elevated inflation, and a central bank deeply divided over which of those dueling problems to focus on. Meanwhile, Trump is poised to pick a new Fed chair to take over when Jerome Powell's term ends in May. [2026] whoever he picks is universally expected to push for lower interest rates, which the president has called for.
..... This year, [2025] the job market steady slowed, with monthly job gains down sharply from where they were a year ago [2024] and the unemployment rate ticking up, key reasons that Fed policy,makers coalesced around a string of interest-rate cuts. The unemployment rat was 4.6% in November, [2025] though economists said the reeding was distorted by the lack of data during the government shutdown.
..... Stubbornly elevated inflation may limit further rate cuts next year. [2026]
..... While third-quarter inflation was much more muted than expected, economists say ti was not a clear indicator and likely understated real price pressures. Meanwhile it will take months to bear out whether tariff-driven goods inflation will indeed fade as many policymakers now expect.
..... Household concerns over th weaker job market - evident in the latest data from the Conference Board showing a deterioration in consumers' perceptions of the labor market to levels last seen in early 2021 - have some economists predicting families will save rather than spend extra money from the tax cuts.
..... And while businesses may gain from investment in AI if it helps them do more with fewer people, employees and job-seekers may not benefit.
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"We expect the unemployment rate to stabilize at 4.5% as hiring picks up on the back of strong final demand growth," wrote 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."
Tax changes for individuals
* Prescient Donald Trump;s "One Big Beautiful Bill Act" makes permanent the lower individual and business income tax rate from 2017 that were due to expire. It also extends the standard deduction, extends the alternative minimum tax exemption, and raises the estate tax exemption from $14 million to $15 million.
* It exempts taxes on up to 425,000 in tipped income until 2029. This phases out for people who earn more than $150,000 and does to apply to all tips.
*It exempts taxes on up to $12,500 in overtime pay until 2029. This phases och for people who earn more than $150,000.
* It creates a new deduction up to $6,000 for people age 65 and older until 2029.
* It creates a tax break for up to $10,000 in interest payments on auto loans until 2029. this applies only to personal vehicles assembled in the United States.
* It expends the deduction for state and local tax payments form $10,000 to $40,000 until 2029. This tends to benefit affluent homeowners in high-tax states like New York and New Jersey.
Reuters