US Treasury Secretary Scott Bessent has struck an optimistic note for the coming year, declaring that "2026 can be a very good year" for the American economy. This bullish forecast, made amidst the festive season, is backed by a confluence of fiscal and monetary factors that could propel growth despite earlier predictions of a slowdown.
The Fiscal Firepower: Tax Cuts and Government Spending
The cornerstone of this anticipated acceleration is the One Big Beautiful Bill Act (BBB), a significant tax-cutting legislation enacted in July 2025. Its effects are now poised to hit the wallets of American consumers and businesses. According to analysis from investment bank Piper Sandler, the act effectively delivers "two years of tax cuts in one," valued at approximately $191 billion.
Americans will receive refunds reflecting retroactive tax cuts on income earned in 2025, while also seeing reduced levies on their monthly earnings. Economists estimate this stimulus alone could boost GDP by around 0.3%. This injection comes as the economy is recovering from a record 43-day federal government shutdown in October-November 2025, which significantly dampened activity. With government spending expected to resume fully in the new year, the Hutchins Centre think-tank calculates an additional growth impulse worth 0.6% of GDP.
Furthermore, deep budget cuts to the Internal Revenue Service (IRS) have weakened tax enforcement. Adam Posen of the Peterson Institute for International Economics suggests this could inadvertently provide another stimulus, potentially adding 0.25% or more to GDP as tax compliance erodes.
Monetary Support and the Tariff Wild Card
On the monetary front, the Federal Reserve has been cutting rates, bringing them down to a range of 3.5-3.75% in December 2025—the lowest since 2022. More easing is anticipated in 2026, especially with President Donald Trump set to appoint a new Fed chair in May from a shortlist of policy doves. He may also get to nominate additional governors, tilting the central bank towards a more accommodative stance.
The outlook on tariffs presents a complex but potentially stimulative picture. While the Congressional Budget Office projects tariff revenue to nearly double to $215 billion in 2026, a pivotal Supreme Court case could upend this. The court is expected to rule soon that tariffs imposed under the International Emergency Economic Powers Act are unlawful.
This decision would trigger two major effects: substantial refunds to companies that paid those tariffs in 2025 (worth about 0.5% of GDP) and a disruption to projected tariff revenue in 2026. Piper Sandler analysts note that replacing this revenue will be "challenging," potentially making the overall budget stance more stimulative than contractionary, as currently forecast by the IMF and OECD.
Global Context and Lingering Risks
This potential US acceleration is not occurring in isolation. Research firm GlobalData TS Lombard points to fiscal expansion in Germany and consumption-boosting reforms in China as supportive global factors. Japan's new government is also expected to roll out stimulus worth about 0.4% of GDP. Additionally, lower oil prices, with Brent crude near a four-year low at $61 a barrel, provide a further tailwind.
However, risks remain. Inflation is still elevated, and a combined fiscal-monetary stimulus could reignite concerns about the government's debt. Trump's potential appointments to the Fed might erode the credibility of its 2% inflation target, possibly leading to a risk premium on Treasury bonds and higher long-term interest rates.
Despite these concerns, the global economy has repeatedly proven resilient in recent years. With no major shock currently on the horizon and multiple sources of potential stimulus, Treasury Secretary Bessent's New Year cheer may indeed be warranted. The median Fed rate-setter already predicts growth of 2.3% for 2026, and a vocal minority of analysts now foresee an even stronger performance.
