US economy expected to grow faster in 2026 despite stagnant job market: Goldman Sachs

• The 2025 growth shortfall of 0.4pp was attributed to an 11pp rise in effective tariff rates, much higher than the 4pp originally anticipated
• Consumers will receive approximately $100 billion in tax benefits in early 2026, equivalent to 0.4% of annual disposable income
• Core PCE inflation currently at 2.8% is expected to decline to just above 2% by end-2026 as tariff impacts fade

Goldman Sachs 2026 Economic Outlook: Growth Acceleration Despite Labor Market Weakness

Goldman Sachs projects U.S. GDP growth will accelerate to 2.6% in 2026, up from 2.1% in 2025 and above Bloomberg consensus of 2%. The investment bank's economists, led by Jan Hatzius, attribute the optimistic forecast to three key factors:

Key Growth Drivers:

• Reduced tariff drag: The average effective tariff rate rose 11 percentage points in 2025, cutting GDP growth by 0.6%. With tariff rates expected to stabilize, this headwind should fade in 2026.
• Tax cuts and fiscal stimulus: The One Big Beautiful Bill Act (OBBBA) will inject $100 billion in consumer tax relief in H1 2026, equivalent to 0.4% of annual disposable income. Business tax provisions allowing full expensing of capital equipment are already boosting investment indicators.
• Favorable financial conditions: Federal Reserve interest rate cuts, deregulation, and AI advancement will support growth.

Labor Market Concerns:

Despite stronger growth projections, Goldman expects the unemployment rate to stabilize around 4.5% in 2026 without meaningful improvement. The unemployment rate rose from 4.1% in June to 4.6% in November 2025. The firm warns of potential further increases if AI productivity gains arrive sooner than expected or companies intensify cost-cutting efforts.

Inflation Outlook:

Core PCE inflation remained elevated at 2.8% in 2025 primarily due to tariff pass-through. Without tariffs, inflation would have fallen to approximately 2.3%. Goldman expects core PCE to decline to just above 2% by end-2026 as tariff impacts diminish, though overall inflation may rise modestly from 0.5% currently to 0.8% by mid-2026.