Goldman Sachs supports the US economy's “soft landing” narrative: the triple downturn of “tariff headwinds dissipation+tax cuts+interest rate cuts” drives growth
The Zhitong Finance App learned that Wall Street financial giant Goldman Sachs recently released a research report saying that the strong growth and resilience of the US economy in 2025 is expected to continue strongly after the calendar is turned to 2026. As tax cuts in the “big and beautiful” bill led by the Trump administration begin to work together with more favorable loose financial conditions, and the headwinds caused by tariffs and inflation are greatly mitigated, the macro-narrative of the “soft landing” of the US economy is clearly expected to heat up in 2026 — that is, the growth rate of the US economy in 2026 is expected to heat up faster than expected by the market.
A team of Goldman Sachs economists stressed that although the non-farm payrolls market has recently stagnated, the AI data center construction process is in full swing, the drag effect of more than 100 billion US dollars in tax rebates and tariffs has been drastically reduced, and factors such as the Federal Reserve's interest rate cut path will jointly boost economic growth momentum.
A team of Goldman Sachs economists led by Jan Hatzius wrote in their 2026 Global Economic Outlook Report that the US economic growth rate this year was clearly curtailed by higher tariffs that exceeded expectations, which made the average effective tariff rate on goods imported into the US several percentage points higher than expected.
They wrote in the report: “Although the smooth wind that boosted the US economy eventually overcame tariffs, as we predicted, this did not always seem to be the case; and our estimated 2.1% growth rate was 0.4 percentage points lower than our previous forecast.” “Our explanation for this gap is that the average effective tariff rate increased by 11pp, far higher than the 4pp we assumed in our benchmark forecast, but also slightly lower than the 14pp we assumed in the economic downturn scenario.”
The Goldman Sachs economists' team as a whole believes that the US economy will grow at a stronger rate in 2026. The agency predicts a real GDP growth rate of about 2.6%, which is higher than the 2% growth rate shown by Bloomberg economists. This continues the trend that Goldman Sachs economists are more optimistic about the US economy compared to unanimous expectations after the COVID-19 pandemic.
Goldman Sachs and Damo both define 2026 as a “year to embrace risk,” that is, a rare “policy trio” of fiscal stimulus, monetary stimulus, and regulatory easing resonates with an unprecedented AI investment cycle, which will drive strong profit growth in US companies and stronger US macroeconomic growth.
The drag effect of tariffs is gradually fading
Goldman Sachs expects the US economy to grow faster in 2026 for three reasons. The first is that the effects of tariffs on economic growth have been drastically reduced. According to Goldman Sachs's research report, the 11pp increase in the average effective tariff rate reduced US GDP by 0.6 percentage points in the second half of 2025, but if the tariff rate “remains largely unchanged from now on, this impact is likely to gradually subside in 2026.”
Goldman Sachs's forecast is largely in line with Morgan Stanley's expectations. Another Wall Street financial giant, Morgan Stanley, previously released a research report showing that the temporary inflation effect brought about by the tariffs will gradually dissipate in the second half of the year. Combined with the Federal Reserve's multiple “preventive” interest rate cuts from 2025 to 2026, the terminal interest rate is likely to fall within the range of about 3.0 to 3.25%. Interest expenses are considered “from high pressure to tight but affordable wealth”. Combined with inflation, a significant slowdown may begin to drive the growth of consumer spending among low- and middle-income groups, and as the US stock market continues to reach new highs, wealthy groups are strong in their stocks. Under support, it is expected to continue Strong spending pace in recent years.
The Dama Macro analyst team expects 2026 to be the end of the impact of Trump's tariff policy + the “big and beautiful” policy coming in the east. Damo expects that tariff costs will continue to be transmitted to consumer terminals in the first half of 2026. The tariffs imposed in 2025 and further expanded in scope (including some heavily reliant on imported products from China and more extensive imports) will not be “in place in one step”. Therefore, many US companies will absorb part of the costs themselves in 2025 and not pass them on to consumers through price increases until the first half of 2025 Q4-2026.
“Big and beautiful” starts in the east
Goldman Sachs said that the tax relief rules and reform measures in the “One Big Beautiful Bill Act (OBBBA)” (the “Big and Beautiful” Act) are the second strongest force that the agency expects the US economy to achieve faster economic growth in 2026.
According to Goldman Sachs economists' team estimates, American consumers will receive an additional tax refund of up to 100 billion US dollars in the first half of next year, which is equivalent to about 0.4% of annual disposable income. Furthermore, they pointed out that corporate tax provisions in the OBBBA Act, which allow full cost of plant and equipment expenses, “have begun to boost forward-looking capital expenditure (capex) indicators.”
More specifically, this kind of “tax refund amplification” mentioned by Goldman Sachs mainly comes from the OBBBA's reduction of personal tax burding/ (partial) retroactive provisions for the 2025 tax year, and the IRS withholding (withholding) tax rate schedule was not adjusted in a timely manner, leading to more withholding by taxpayers throughout the year, thus being concentrated in the form of higher tax refunds during the 2026 tax reporting season.
Goldman Sachs's expectations for the “Big and Beautiful” Act are also almost in line with Damao. Damo forecasts indicate that the OBBBA tax relief bill (the so-called “big and beautiful” bill) passed by the Trump administration in 2025 will have a strong economic growth effect starting in 2026, and price increases brought about by Trump's tariff policy will eventually prove to be a temporary inflation disturbance until short-term inflation gradually dissipates, and tech giants such as Microsoft and Google are in full swing building AI data centers centered around AI computing power infrastructure. Together, they will drive the US economy to show a “golden girl style soft landing” in 2026.
Dama said that although the “OBBBA” (OBBBA) Act may stimulate a comeback in inflation, the benefits to the US economy far outweigh the disadvantages. In particular, for the bond market, “large-scale deficits,” which can be called a disaster, will continue to be a major feature driving US economic growth in the next few years. Damo also mentioned that the “Big and Beautiful” Act (OBBBA) and previous infrastructure laws provide relatively stable support for US public investment, so “public investment” will also make a significant positive contribution to the “overall investment growth” of the US GDP in 2026.
Good for the Federal Reserve to cut interest rates
The third factor affecting the forecast for faster economic growth in 2026 is the more favorable financial conditions brought about by the Federal Reserve's continuous interest rate cuts — in particular, the long-term beneficial effects of the Fed's interest rate cut path on the huge equity assets of high-net-worth households in the US; Goldman Sachs said that other core influencing factors conducive to the rapid growth of the US economy include deregulation by the Trump administration and the advancement of artificial intelligence (AI) technology development, and the AI data center construction process led by tech giants is in full swing. Goldman Sachs economists expect the Federal Reserve to cut interest rates at least 2 more times in 2026 — higher than the median expected rate cut only once shown on the FOMC bitmap.
It is worth noting that although Goldman Sachs's annual outlook suggests that the economy will grow faster, it does not expect this to translate into a significant improvement in the US non-farm payroll labor market. Goldman Sachs expects the 2026 labor market to continue to show a weak and balanced labor market with “low recruitment and low sanctions.” During 2025, the overall US labor market gradually cooled down amid economic uncertainty caused by tariffs, changes in immigration policies (a sharp decline in the number of employed people due to a decrease in the number of illegal immigrants), and federal government layoffs.
The latest statistics show that the unemployment rate rose from 4.1% in June to 4.6% in November. Although some of this may be related to the shutdown of the federal government, Wall Street agencies analyzed that the labor market began to show signs of cooling in the year before the shutdown, so this trend cannot be ignored.
Goldman Sachs's outlook shows that the agency's economists still believe that it will take several years for the maximum productivity benefits brought by AI to become apparent; at the same time, although they expect the US unemployment rate to stabilize at around 4.5% in 2026, the economists added, “We don't think the unemployment rate will experience a meaningful further decline in the short term.”
However, Goldman Sachs economists also wrote, “In fact, if AI applications that can increase productivity are implemented faster than market expectations, or if corporate management puts more emphasis on reducing labor costs in 2026, we can fully imagine that the unemployment rate will rise further in the short term.”
The agency's annual outlook also suggests that inflation is expected to continue to fall back — after rebounding to close to 3% during 2025. Goldman Sachs economists pointed out, “The main reason why core PCE inflation remained at a relatively high level of 2.8% in 2025 is mainly due to tariff transmission,” adding that without a tariff transmission mechanism, inflation would have dropped to only around 2.3%.
Goldman Sachs economists said that although the scale of tariff transmission is likely to rise slightly from about 0.5 pp now to about 0.8 pp in mid-2026 — assuming tariffs remain at roughly current levels, the impact of tariffs on inflation will weaken significantly in the second half of next year as the base effect and the market fully digests the tariff transmission mechanism, thus making the Federal Reserve's most popular inflation indicator — core PCE inflation — likely to fall below 2% by the end of 2026, and remain stable around 2% for a long time.