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The Biggest Threat to the 2026 Economy Is Still Donald Trump
Many analysts are predicting an election-year upturn, but they aren’t accounting for the President’s ability to cause more chaos.
By John Cassidy, December 22, 2025
You’re reading The Financial Page, John Cassidy’s weekly column on economics and politics.
In a prime-time address from the Oval Office last week, Donald Trump said, “We are poised for an economic boom the likes of which the world has never seen.” This was the sort of bloviating that has convinced many voters he’s hopelessly out of touch, but it did raise the question of how the economy is likely to perform in 2026, a midterm-election year. Given the data fog that the government shutdown created, the old joke applies more than ever: it’s difficult to make predictions, especially about the future. But some things seem reasonably clear.
Right now, the economy is working in the Democrats’ favor. Concerns about affordability have refused to abate: the latest weekly poll by YouGov/The Economist indicates that Americans still consider “inflation/prices” to be the most important policy issue, and just a third of them approve of how Trump is handling it. Meanwhile, it looks like G.D.P. growth for 2025 will come in at about two per cent—one percentage point lower than it was in the last two years of the Biden Administration—and the unemployment rate is ticking up. When Joe Biden left office, it was four per cent; now it is 4.6 per cent.
Still, November is a long way away, and observers outside the Oval Office, including Jerome Powell and his colleagues at the Fed, have been raising their estimates of how the economy might perform in the New Year. “Fiscal policy is going to be supportive. And, as I mentioned, A.I. spending will continue,” Powell said at a press conference earlier this month. “The consumer continues to spend. So, it looks like the baseline will be solid growth next year.” Many economists on Wall Street concur. In releasing its global outlook for 2026 last week, Goldman Sachs upped its prediction for U.S. growth to 2.6 per cent: “The US is likely to outperform substantially . . . because of reduced tariff drag, tax cuts, and easier financial conditions.”
The A.I. boom certainly can’t be dismissed. According to analysts at Barclays, about half of all the G.D.P. growth in 2025 stemmed from “spending on data centers, chips, power grids, networking equipment and other AI-related capital expenditure.” Going into 2026, corporate investment in A.I. shows no signs of slacking. The Fed likely isn’t done cutting interest rates, and come next April and beyond, tax refunds stemming from the budget-busting One Big Beautiful Bill Act will also be material: according to the Tax Foundation, they will average about three hundred to a thousand dollars more than usual per household. Other things being equal, the refunds will likely give a boost to consumer spending.
With Trump in the Oval Office, however, other things are rarely equal. Disruption is his essence. A big reason for G.D.P. growth slowing this year and prices remaining stubbornly high is that Trump’s ever-changing tariff policies created an enormous amount of uncertainty and raised the cost of imported goods.
When economists talk of tariff relief, they are assuming that things will be more settled in 2026—but will they? Some businesses are still in the process of passing along the tariff hikes to consumers. The Supreme Court could well rule that Trump’s blanket levies, which he introduced using emergency powers, are illegal, but that wouldn’t necessarily be the end of them. The Administration would surely try to rejigger the levies using different legal authorities, which create another round of anxiety and uncertainty for businesses, particularly small businesses.
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