US Economic Outlook 2026: Trump's Tax Cuts Face the Tariff Drag

As the US economy navigates through 2025, forward-looking data for 2026 suggests a tug-of-war between fiscal stimulus and protectionist trade policies. Consensus estimates from mid-December place US GDP growth at a moderate 2.0% for 2026, forcing traders to recalibrate expectations for the Federal Reserve's terminal rate.

The Fiscal Stimulus: “Tax Cuts 2.0”

The Trump administration's legislative push to extend income tax cuts and exempt tips/overtime pay is expected to front-load liquidity into the consumer market.

Goldman Sachs predicts this fiscal impulse will support consumption, with average refunds potentially rising from ~$3,000 to over $3,600.

Competing Headwinds: Tariffs and Labor

Despite the fiscal sugar rush, structural headwinds prevent a more bullish outlook.

The Fed's Stance

Federal Reserve officials remain slightly more optimistic than Wall Street, projecting 2.3% growth. Minutes suggest the central bank believes the benefits of deregulation and fiscal support will outlast the initial shock of tariffs. However, with the deficit widening—exacerbated by proposals such as $2,000 tariff refund checks—long-term yield curves may steepen as bond vigilantes price in higher debt issuance.