Amid signs that the U.S. economy may be poised to accelerate, Trump administration officials are predicting an economic boom that will lift Republican prospects in the November congressional elections.
The administration aims to run the economy hot, counting on a rare trifecta to boost growth in 2026: generous tax refunds and investment incentives, Federal Reserve interest rate cuts and the pruning of regulations that corporate groups call burdensome. Productivity gains from wider deployment of artificial intelligence will keep inflation at bay, officials said.
President Donald Trump said at a recent Cabinet meeting that the economy could hit growth “numbers that have never been hit before.” Treasury Secretary Scott Bessent predicts a “blockbuster” 2026.
Most private sector forecasters anticipate solid growth this year and see little risk of recession. But they describe the stimulative effects of government policy as more modest and likely to be offset by drags from Trump’s immigration and tariff initiatives. Some warn that any economic liftoff will be insufficient to reverse sagging consumer sentiment before voters decide which party to back in November.
“Maybe instead of it being about 2 percent [growth], maybe we actually get to something that’s closer to 3 percent. But this is not five or seven. And honestly, for people to feel better about the economy, he needs numbers like that,” said Claudia Sahm, chief economist for New Century Advisors, a Bethesda-based investment firm.
Friday brought good news for the White House as the University of Michigan’s consumer sentiment index inched higher.
After nearing a record low late last year, consumers’ mood has improved for three consecutive months. But there is a long way to go: February’s reading was less than one point higher than the previous month and remains about 20 percent lower than one year ago. Consumers remain unhappy with high prices and tough job prospects, said Joanne Hsu, the survey director.
The White House has struggled to address public discontent over the cost of living, which lifted Trump to victory in the 2024 election. After spiking under President Joe Biden to a 40-year high of 9 percent in mid-2022, the consumer price index in December rose at an annual rate of 2.7 percent — better but still stubbornly higher than the Fed’s 2 percent target for price stability.
The Fed projects continued progress against inflation this year, but it will likely be a slow grind. Voters’ feelings about the economy tend to harden months before Election Day. So the likelihood that inflation will remain above target at midyear could cast a pall on Republican ballot prospects.
The economy is already growing about as fast as it can without triggering higher prices, according to the Congressional Budget Office. So the policy-driven stimulus that the administration plans runs the risk — at least in theory — of driving inflation higher.
“It absolutely creates a dynamic where the economy is growing well above its long-term sustainable potential in the first half of the year. And I think that, by definition, puts upward pressure on prices and accelerates inflation,” said Michael Strain, a former Fed economist who is now with the American Enterprise Institute.
Administration officials see that risk as low. They are betting that more widespread deployment of artificial intelligence will make workers more productive, thus setting the stage for higher wages and a noninflationary acceleration in growth. Labor productivity rose last year with the largest gains concentrated in sectors such as information technology and professional services like education, finance and real estate, according to economists at Capital Economics.
“We are not running the economy hot by stimulating demand like the previous administration did, but by stimulating supply, which provides for longer-lasting disinflationary growth,” said Pierre Yared, acting chairman of the White House Council of Economic Advisors.
Bessent has said that AI has the potential to allow the U.S. to repeat the late 1990s expansion, when economic growth surged without inflation. Annual productivity increases in that era topped 4 percent, more than twice the current pace, according to the Bureau of Labor Statistics.
The administration’s hope is that faster productivity gains will allow wages to continue rising without causing the Fed to raise rates to head off a spiral in prices. Kevin Warsh, nominated to become the next central bank chairman, seems sympathetic to the White House plan to run the economy hot. In a November Wall Street Journal opinion piece, he called AI “a significant disinflationary force.”
But AI may spur inflation before it reduces it, several economists said. The investment boom in data centers and electric power production may drive up the cost of capital and other resources before the productivity benefits materialize, said Greg Daco, chief economist for EY Parthenon.
On Wall Street, some analysts are raising their economic growth forecasts and monitoring administration pronouncements for signs of more election-year pump priming. Trump has spoken, for example, of sending taxpayers $2,000 checks drawn from tariff proceeds, though no formal proposal has emerged.
“I think it’s clear this administration is focusing on the midterm cycle. I expect that they will enact policies designed to boost their prospects,” said Eric Winograd, director of developed market economic research at AllianceBernstein in New York, who recently increased his 2026 growth forecast by half a percentage point to 2.3 percent.
There are questions about just how powerful Trump’s economic adrenaline will be.
Trump’s “run hot” plan is centered on his signature tax legislation, which the president calls his “one big beautiful bill.” The legislation extended the 2017 individual and business tax cuts passed in Trump’s first term. As a result, average tax refunds are estimated to be almost $800 higher this year than in 2024, according to the White House.
In total, the tax cuts will funnel around $200 billion into the economy this year, according to JPMorgan Chase. Since more affluent households pay a greater share of the tax bill, they will receive the lion’s share of the benefits. Higher earners spend a smaller share of their total income than do poorer people.
“The question for that first leg of this fiscal stimulus is whether people will put that money to use,” Daco said.
Consumers spent freely during the holiday season, driving the personal savings rate to its lowest point in three years. Swollen credit card balances might convince Americans to devote some or all of their refunds to debt repayment rather than spend them on goods and services, he said.
Economists at Bank of America expect about half of the refunds, which typically peak in February and continue through April, to be spent immediately. The rest will be divided between stock market investments and debt repayment, they said in a recent client note.
The tax bill should also spur greater business investment through provisions promoting research and development ventures and one allowing companies to write off the cost of new equipment in the year of purchase rather than over its lifetime. The combined business and individual tax cuts could drive a “significant reacceleration” of the economy, according to economists at TS Lombard in London.
The president’s oft-expressed wish for the Fed to continue cutting short-term interest rates may come true later this year. The central bank already has reduced its benchmark interest rate by 1.75 percentage points since September 2024 and markets are pricing in additional cuts later this year.
But those moves may not deliver the economic punch that the president craves. While the Fed controls short-term rates by adjusting the federal funds rate that banks pay for overnight borrowing, financial markets determine long-term borrowing costs. Mortgage rates, for example, are influenced by the 10-year treasury rate.
Even as the Fed has cut short-term rates, the 10-year yield has risen on investor unease over the federal budget deficit and potential inflation, Daco said. That has kept mortgage costs above 6 percent.
Administration officials also are pursuing a deregulation push designed to spur growth. Within days of taking office, Trump moved to rescind Biden administration regulations that would have cost the economy nearly $1 trillion, according to a June 2025 presentation by the Council of Economic Advisors.
Over a decade, deregulation will boost annual economic growth by roughly one-third of a percentage point to almost a full point, said Yared, the acting CEA chair.
Appearing this week before the Senate Banking Committee, Bessent, a former hedge fund executive, criticized “excessive regulation” introduced after the 2008 financial crisis. Where Democratic critics see a failure to learn the lessons of that episode, which cost American households nearly $11 trillion, Bessent spies an opportunity to grow the economy by allowing banks to take greater risks.
Reducing capital requirements could lead to an additional $2.6 trillion in new lending, according to one oft-cited study by Alvarez and Marsal, a New York consultancy.
Just one year into Trump’s second term, the deregulation effort remains a work in progress. Tangible gains are unlikely before Election Day. But administration officials are increasingly confident that their economic plan is delivering.
“We’re happy to own this,” Bessent said on a recent Politico podcast. “I think 2026 is going to be a great year and I think the Republican Party is happy to run on the economy.”
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