Treasury Secretary Bessent delivers blunt forecast on the economy | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

Treasury Secretary Scott Bessentisn’t known for mincing words, and his reaction to the lackluster Q4 GDP report was anything but subtle.

In sounding off on the economy, Bessent told Fox News that the U.S. economy can grow by at least 3.5% in 2026, according to Reuters. In a market that’s seemingly obsessed with a potential slowdown risk, that’s clearly a bold flag in the ground.

Bessent’s take, though, completely flips that script.

He makes the case that the headline numbers (just a 1.4% increase in real GDP) continue to mask underlying strength, led by steady consumer spending, ongoing business investment, and AI-driven capex that could potentially lift productivity.

Zooming out and looking to the private economy, things look a lot sturdier than many models suggest.

In fact, several big-name analysts are in the “don’t overreact, but don’t declare victory” camp at this point.

For perspective, Michael Pearce at Oxford Economics said the economy’s foundation remains mostly resilient, while arguing that the Fed will likely hold rates steady as inflation numbers remain elevated.

In addition, the economy “isn’t as weak as Q4 suggests, nor as strong as Q3 implied,” BMO‘s Sal Guatieri said in a blunt take.

However, as indicated in two recent stories I wrote on the economy, Wall Street‘s tone was far more divided than Bessent’s.

Moody’s chief economist Mark Zandi told Bloomberg that the economy “feels fragile,” adding that AI-driven productivity could outpace job creation if demand cools.

On the flip side, Goldman Sachs CEO David Solomon was more upbeat, calling the 2026 setup “quite good,” spearheaded by rising AI capex and fiscal support.

Nevertheless, 3.5% growth is meaningfully above trend, and that stellar pace requires multiple cylinders to fire in tandem.

Treasury Secretary Bessent projects at least 3.5% GDP growth for 2026.

Photo by FABRICE COFFRINI on Getty Images

The government shutdown skewed the quarter

Clearly, on paper, the GDP numbers for Q4 look ugly.

Real GDP was up just 1.4%, plummeting from 4.4% in Q3 and languishing below economists’ expectations at 3%, per Reuters.

However, the BEA report explains why the headline numbers are misleading.

MoreEconomic Analysis:

For starters, the October-November federal shutdown did the big damage. Federal agencies closed shop from Oct. 1 through Nov. 12, clipping federal labor services growth by roughly 1 percentage point.

In fact, the drag is even more pronounced at 1.15 points, Reuters reported, with federal spending dropping at a 16.6% annualized pace.

No wonder Bessent categorized the quarter “artificially low.”

That said, if we look past the noise, the core still looks mostly solid.

Real final sales to private domestic purchasers, the cleanest demand measure, were up 2.4%, but down from 2.9% (far from recessionary). Moreover, consumer spending jumped to 2.4%, while intellectual property investment rose to 7.4%, pointing to the underlying strength in AI-driven capex.

Quick economy scoreboard: the latest macro forces

Real GDP (Q4 2025): It showed a +1.4% seasonally adjusted annual rate (SAAR), while real final sales to private domestic purchasers ran +2.4% SAAR.
Shutdown drag (Q4 2025): The drop in labor services clipped 1 percentage point off GDP (BEA estimate); Reuters puts federal spending down 16.6% SAAR, and the GDP hit at 1.15 pp.
Inflation: Core PCE came in at 3% year over year (Dec. 2025) while CPI-U (urban consumer CPI) was at 2.4% year over year (Jan. 2026), underscoring a cooler CPI and hotter PCE.
Labor market: +130,000 payrolls (Jan. 2026); unemployment 4.3%; 2025 payroll growth revised down to +181,000.
Tariffs: The Supreme Court said that the IEEPA can’t be used to impose tariffs, but the White House just moved ahead with a 10% (later 15%) Section 122 surcharge starting Feb. 24. Sources: U.S. Bureau of Economic Analysis (BEA.gov), U.S. Department of Labor (DOL.gov), U.S. Supreme Court (SupremeCourt.gov)

Bessent’s 3.5% call sets a high bar for 2026

Bessent’s bullish case for the U.S. economy growing at least 3.5% in 2026 is essentially a two-part argument, Reuters notes.

The first and most obvious one is a mechanical case.

The federal shutdown shaved a percentage point off Q4 GDP, so simply restoring the activity would make the numbers look much more robust. In fact, PBS suggests that the drag from the 43-day shutdown will course-correct in Q1, likely producing a rebound.

To be fair, though, a big 3.5% bump for a full year is more than just a bounce.

Such results entail significantly faster productivity numbers, healthier labor-force growth, or a sustained surge in investment.

On that final factor, the evidence is starting to pile up.

Business spending on intellectual property shot up 7.4% in Q4, mostly linked to AI-related R&D. Moreover, four of the biggest hyperscalers in Google-parent Alphabet, Amazon, Meta, and Microsoft guided to nearly $650 billion in 2026 capex, Yahoo! Finance reported.

Nevertheless, the constraints are clear.

Inflation remains sticky, with the GDP price index up 3.7% annualized in Q4. Moreover, the Fed is also looking to hold rates at 3.5% to 3.75%, signaling it wants stronger evidence that inflation is cooling.

At the same time, hiring has remained subdued, with Fed Chair Powell describing the pesky labor market as mostly stabilizing, and not accelerating.

In fact, veteran economist Mark Zandi painted an even darker picture of the jobs market in a recent Bloomberg interview.