Goldman Sachs supports the narrative of a "soft landing" for the US economy: "tariff headwinds dissipated + tax cuts + interest rate cuts" drive growth in three favorable winds.

Recently, Wall Street financial giant Goldman Sachs released a research report stating that the strong growth resilience of the US economy in 2025 is expected to continue strongly after the calendar turns to 2026. With the tax cuts and more favorable loose financial conditions in the "big and beautiful" bill led by the Trump administration starting to take effect, combined with the significant easing of headwinds caused by tariffs and inflation, the macro-narrative of a "soft landing" for the US economy is expected to significantly warm up in 2026 that is, the growth rate of the US economy in 2026 is expected to be faster than market expectations. Goldman Sachs economists emphasized that despite the recent stagnation in the non-farm job market, factors such as the booming construction of AI data centers, over $100 billion in tax refunds, and the significant relief of tariff-induced effects will boost economic growth momentum. Led by Jan Hatzius, the Goldman Sachs economics team wrote in their 2026 global economic outlook report that the growth rate of the US economy this year was significantly suppressed by higher tariffs than expected, resulting in an average effective tariff rate on imported goods to the US being several percentage points higher than anticipated. They wrote in the report, "Although the tailwinds driving the US economy ultimately overcame tariffs, as we predicted, it did not always look like it would; and our estimated growth rate of 2.1% is also 0.4 percentage points lower than our previous forecast." "Our explanation for this difference is that the average effective tariff rate increased by 11 percentage points, far higher than the 4 percentage points we assumed in our baseline forecast, but also slightly lower than the 14 percentage points we assumed in an economic downturn scenario." Overall, the Goldman Sachs economists team believes that the US economy will grow at a faster rate in 2026, with the institution predicting a real GDP growth rate of about 2.6%, higher than the consensus expectation of 2% among Bloomberg economists. This continues the trend of Goldman Sachs economists being more optimistic about the US economy compared to consensus expectations since the COVID-19 pandemic. Both Goldman Sachs and Morgan Stanley define 2026 as the "year of embracing risk", with rare fiscal stimulus, monetary stimulus, and regulatory relaxation forming a "policy trio", combined with an unprecedented AI investment cycle led by tech giants such as Microsoft and Google, driving strong earnings growth for US companies and stronger macroeconomic growth. Gradual fading of tariff-induced effects Goldman Sachs predicts that the US economy will accelerate in 2026 for three reasons. First, the drag on economic growth caused by tariffs is significantly reduced. Goldman's research report points out that the 11 percentage point increase in the average effective tariff rate in the second half of 2025 led to a 0.6 percentage point reduction in US GDP, but if the tariff rate remains roughly unchanged, this impact is likely to gradually fade in 2026. This forecast from Goldman Sachs is almost in line with Morgan Stanley's expectations. Another Wall Street financial giant, Morgan Stanley, previously released a research report showing that the temporary inflation effects of tariffs will gradually dissipate in the second half of the year, combined with the multiple "preemptive" interest rate cuts by the Federal Reserve in 2025-2026, with the terminal interest rate likely to fall to about 3.0-3.25%, shifting from "tight but manageable" to loose, and with the potential for inflation to significantly slow, beginning to drive growth in consumer spending among middle and lower income groups, while the continued rally in the US stock market, supported by strong stock wealth among the affluent, is expected to continue the strong pace of spending in recent years. Morgan Stanley's macro analysts team predicts that 2026 will mark the end of the impact of Trump's tariff policy and the crucial period when the "big and beautiful" policy sweeps in. Morgan Stanley expects the cost of tariffs to continue to be passed on to consumers in the first half of 2026, as the tariffs levied in 2025 and further expanded (including on imports heavily reliant on China and more extensive imports) are not "all at once", so many US companies will first absorb some of the costs in 2025 and then gradually pass them on to consumers from the fourth quarter of 2025 to the first half of 2026 through price hikes. Rise of the "big and beautiful" policy Goldman Sachs states that the tax cut provisions and reform measures in the "One Big Beautiful Bill Act (OBBBA)" will be the second strong force driving faster economic growth in the US in 2026, according to their calculations, US consumers will receive an additional $100 billion in tax refunds in the first half of next year, equivalent to about 0.4% of annual disposable income. Additionally, they point out that the provision in the OBBBA that allows businesses to fully expense plant and equipment spending is already beginning to boost forward-looking capital expenditure indicators. Specifically, Goldman mentions that this "tax refund amplification" mainly comes from: the reduction in individual tax burdens for the 2025 tax year under the OBBBA/(partly) retrospective provisions, combined with the IRS withholding tax rate tables not being adjusted in a timely manner, resulting in taxpayers overpaying for the whole year, thus showing up as higher tax refunds in a concentrated form in 2026 tax season. Goldman's expectations for the "big and beautiful" bill are almost identical to Morgan Stanley's. Morgan Stanley forecasts that the tax cuts in the OBBBA passed by the Trump administration in 2025 will begin to strongly drive economic growth from 2026 onwards, combined with the temporary inflationary effects of Trump's tariff policy being proven to be short-lived disturbances, as well as the process of AI data center construction around AI computing power infrastructure being carried out vigorously by tech giants like Microsoft and Google, will collectively drive the US economy to present a "soft landing" in 2026, characterized by gentle growth. Morgan Stanley states that while the "big and beautiful" (OBBBA) bill may stimulate a return of inflation, the benefits to the US economy far outweigh the drawbacks, particularly as the "massive deficits" that could prove disastrous for the bond market will continue to be a major feature driving economic growth in the coming years. Morgan Stanley also mentions that the OBBBA and previous infrastructure bills provide stable support for public investment in the US, so "public investment" will also make a significant positive contribution to overall investment growth in the US GDP in 2026. Fed Rate Cuts Favorable The third factor influencing the faster economic growth forecast for 2026 is the more favorable financial conditions brought about by the Federal Reserve's successive interest rate cuts especially the long-term benefits of the Fed's rate cut path for US high net worth families who hold significant stock and bond assets; Goldman Sachs states that other core factors favorable to faster economic growth in the US also include the Trump administration's regulatory easing and the advancement of artificial intelligence (AI) technology, as well as the construction of AI data centers led by tech giants, which will significantly boost economic conditions in the US in 2026. Goldman Sachs economists predict that the Federal Reserve will cut interest rates at least twice in 2026 higher than the midpoint of the Fed's dot plot showing an expectation of only one rate cut. It is worth noting that while Goldman's annual outlook suggests that economic growth will be faster, it does not believe this will significant improvements in the US non-farm labor market. Goldman expects the labor market in 2026 to continue to show a "low hire low fire" pattern of weak equilibrium. During 2025, the overall labor market in the US cooled off gradually due to tariffs, changes in immigration policies (a significant decrease in illegal immigrants leading to a sharp decline in the number of employed persons), and economic uncertainty caused by federal government layoffs. The latest statistics show that the unemployment rate rose from 4.1% in June to 4.6% in November. While some of this may be related to the federal government shutdown, analysis by Wall Street institutions indicates that signs of cooling in the labor market were evident before the shutdown, so this trend cannot be ignored. Goldman's outlook shows that the institution's economists still believe that it will take several years for the maximum productivity benefits of AI to materialize; and although they expect the US unemployment rate to stabilize at around 4.5% in 2026, economists add, "we do not expect the unemployment rate to show a meaningful further decline in the short term." However, Goldman economists also write, "In fact, if AI applications that enhance productivity are implemented faster than expected by the market, or if business management places more emphasis on reducing labor costs in 2026, we can completely imagine further increases in the unemployment rate in the short term." The institution's annual outlook also indicates that inflation is expected to continue to decline inflation rebounded to near 3% during 2025. Goldman economists point out, "The reason why core PCE inflation remained relatively high at 2.8% in 2025 was mainly due to tariff transmission," and that if there were no tariff transmission mechanism, inflation would have fallen to only about 2.3%. Goldman economists state that although the scale of tariff transmission may increase slightly from the current level of about 0.5 percentage points to around 0.8 percentage points by mid-2026 assuming tariffs remain roughly at current levels, the impact of tariffs on inflation will significantly weaken in the second half of next year as base effects and market digestion of the tariff transmission mechanism are fully realized, potentially leading the Federal Reserve's favored inflation indicator core PCE inflation, to fall below 2% by the end of 2026, and remain long-term stable at around 2%.