Will Trump see a faster-growing US in 2026? 5 factors to keep an eye on

Soon after returning to the White House, US President Donald Trump announced a host of controversial economic policies that rocked Wall Street and made economists worry about the future of the American economy . However, his administration is keeping a positive outlook towards 2026.

“I think 2026 can be a very good year,” forecast US Treasury Secretary Scott Bessent . He is expecting the calendar’s turn to herald faster economic growth. The basis of his optimism is the efforts of Trump’s controversial One Big Beautiful Bill Act (BBB), a tax-cutting law enacted in July, whose ripple effects will be felt soon.

Apart from this, while many saw tariffs, imposed by Trump on foreign goods, as the villain of the story, economists are speculating that it also has the potential to do good. Since Federal Reserve Chair Jerome Powell will also be ending his term in 2026, many believe that a ‘friendlier’ Fed Chair would also benefit the Trump administration.

As we start the year 2026, here are five ways Trump’s economic policies have the potential to boost the American economy.

5 ways Trump’s gamble can boost the American economy

1 The ‘two-for-one’ tax cheer: With the BBB going into effect , Americans will get tax refunds for 2025 and lower deductions in the future, meaning more cash in wallets — and potentially more spending firepower in 2026.

According to The Economist, experts believe that these tax cuts would be sufficient to boost GDP by 0.3 per cent — a reasonable stimulus, given the economy likely grew by 1.9 per cent in 2025.

2 From shutdown gloom to spending boom: After a record 43-day government shutdown dragged growth down, restored federal spending could give the economy a meaningful lift — unless Washington trips over itself again.

The spending boost could provide an impulse worth 0.6 per cent of GDP, according to the Hutchins Centre, a think-tank, on top of the tax refunds. Apart from this, the Trump administration has weakened the tax enforcement mechanism operating in the country.

Deep cuts to the Internal Revenue Service mean that receipts are likely to be lost, and people might cheat on their payments. Interestingly, this could be worth an additional 0.25 per cent of GDP, if not more, according to Adam Posen of the Peterson Institute for International Economics, another think-tank.

3 Tariffs — a current villain and potential hero: Tariffs were expected to bite. With the high duties in play, the IMF and the OECD forecast that America’s primary budget deficit, which excludes interest payments, will shrink in 2026, a fiscal contraction rather than a stimulus. However, these forecasts do not factor in the probable fate of the Trump Tariffs at the US Supreme Court. If the Supreme Court strikes many down, companies could get hefty refunds.

This could add another 0.5 per cent to the country’s GDP. As such, the striking down of tariffs could make the overall stance of the budget stimulative.

A friendlier Fed in Trump’s corner: With rates already cut and a more dovish central bank likely ahead, the Fed may lean towards easing, keeping borrowing costs lower and markets happier. In May this year, Trump will name someone to replace Jerome Powell as Fed chairman.

He may be able to nominate dovish governors to the Fed, too. Apart from this, in June, the American Supreme Court will also hear a case pitting Trump against Lisa Cook , a governor he is trying to sack. If the court sides with the president, another seat would also open up for Trump to fill. While Trump is unlikely to capture the Fed completely, he will probably be able to tilt the central bank towards kinder policy.

5 Markets smiling, oil falling, world helping: A confident Wall Street, cheaper oil, stimulus abroad, and stable US jobs could together keep confidence alive. According to The Economist, there has been a consensus on Wall Street that the S&P 500 index of stocks will rise by 9 per cent in 2026.

If this happens, it would support household wealth and therefore consumer spending. Hence, minority analysts say that 2026 will be a year of economic growth. Some believe that similar trends are happening in countries like Germany, Japan, China, etc.

Labour markets are a dark spot, but more because of low hiring than lay-offs. “Sentiment will pick up next year and support both solid GDP and job growth,” argue economists at JPMorgan Chase, a bank. Concerns over inflation, credibility and bond markets lurk as spoilers.

Overall, while Trump’s controversial economic policies are surprising many, there is plenty of scope for it to outperform. Hence, Bessent has reason to be optimistic this year.