Treasury Secretary Scott Bessenthe is not known for mincing words and his reaction to lackluster Q4 GDP report it was anything but subtle.
Analyzing the economy, Bessent told Fox News that the US economy can at least grow 3.5% in 2026according to Reuters. In a market seemingly obsessed with potential downside risk, this is clearly a bold flag in the ground.
However, Bessent’s interpretation completely flips the script.
He claims that the title numbers (only a 1.4% increase in real GDP) continues to mask underlying strength, led by steady consumer spending, investment in ongoing businesses, and AI-driven investment, which could boost productivity.
Moving on to the private economy, things look much more robust than many models suggest.
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In fact, several reputable analysts are in “don’t exaggerate, but don’t declare victory” camp at this point.
For perspective, Michael Pearce of Oxford Economics said the economy’s foundation remains largely resilient, while maintaining that the Fed will likely hold rates steady as inflation figures remain high.
In addition, the economy is “not as weak as Q4 suggests, nor as strong as Q3 suggests,” BMO says. Sal Guatieri he said bluntly.
However, as shown in two recent stories I wrote on the economy, Wall Street’s tone was much 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 slows.
On the other hand, Goldman Sachs CEO David Solomon was more bullish, calling the 2026 setup “pretty good,” led by increased AI capital and fiscal support.
However, a 3.5% increase is significantly above trend, and this stellar pace requires multiple cylinders to fire in tandem.
Treasury Secretary Bessent projects at least 3.5% GDP growth by 2026. Photo by FABRICE COFFRINI on Getty Images ·Photo by FABRICE COFFRINI on Getty Images
Clearly, on paper, the GDP numbers for Q4 look ugly.
Real GDP only increased 1.4%crashing out of 4.4% in Q3 and languishing below economists’ expectations at 3%according to Reuters.
However, the BEA report explains why the headline numbers are misleading.
MoreEconomic analysis:
For starters, the October-November federal shutdown did a lot of damage. Federal agencies closed shop from Oct. 1 to Nov. 12, reducing federal employment services growth by about 1 percentage point.
In fact, the drag is even more pronounced at 1.15 pointsReuters reported, with federal spending falling to a 16.6% annualized rate.
No wonder Bessent labeled the quarter “artificially low.”
That said, if we look past the noise, the core still looks mostly solid.
Real final sales to private domestic buyers, the purest measure of demand, rose 2.4%but down from 2.9% (far from recession). Moreover, consumer spending rose to 2.4%while investment in intellectual property increased to 7.4%indicating the underlying power of AI-based investing.
Real GDP (Q4 2025): He showed a +1.4% seasonally adjusted annual rate (SAAR), while actual final sales to domestic private buyers were recorded +2.4% SAAR.
Slide Close (Q4 2025): The decrease in labor services decreased 1 percentage point off GDP (BEA estimate); Reuters puts federal spending down 16.6% SAAR, and the GDP hit 1.15 p.
Inflation: Core PCE entered at 3% year on year (Dec. 2025) while CPI-U (urban consumer CPI) was at 2.4% year on year (Jan. 2026), pointing to cooler CPI and warmer PCE.
The labor market: +130,000 payrolls (Jan. 2026); unemployment 4.3%; The salary increase in 2025 has been revised up to +181,000.
rates: The Supreme Court said the IEEPA can’t be used to impose tariffs, but the White House just went ahead with a 10% (later 15%) Supplement to section 122 from 24 February. Sources: US Bureau of Economic Analysis (BEA.gov), US Department of Labor (DOL.gov), US Supreme Court (SupremeCourt.gov)
Bessent’s bullish case for a growing US economy at least 3.5% in 2026 is essentially a two-part argument, Reuters notes.
The first and most obvious is a mechanical case.
The federal shutdown has been shaved off one percentage point of GDP in the fourth quarter, so simply the recovery of activity would make the numbers look much more robust. In fact, PBS suggests that shooting from 43 days shutdown will correct course in Q1, likely producing a rebound.
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To be fair though, a big one 3.5% gradient for a whole year is more than just a leap.
Such results imply significantly faster productivity numbers, healthier labor force growth or sustained investment growth.
On this last factor, the evidence is beginning to accumulate.
Business spending on intellectual property has increased 7.4% in Q4, mostly related to AI-related research and development. Moreover, four of the largest hyperscalers in the Alphabet parent of Google, Amazon, Meta and Microsoft guided to close 650 billion dollars in capex 2026, Yahoo! Reported Finances.
However, the constraints are clear.
Inflation remains sticky, with the GDP price index rising 3.7% annualized in Q4. Moreover, the Fed is also looking to keep rates at 3.5% to 3.75%signaling that it wants stronger evidence that inflation is cooling.
At the same time, hiring remained modest, with Fed Chairman Powell describing the dim job market as mostly stabilizing rather than accelerating.
In fact, veteran economist Mark Zandi painted an even darker picture of the labor market in a recent Bloomberg interview.
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This story was originally published by TheStreet on February 22, 2026, where it first appeared in the Economy section. Add TheStreet as a favorite source by clicking here.
