On stage in Davos this week, Donald Trump did not hold back as he claimed credit for America’s gravity-defying economic performance.
“Growth is exploding, productivity is surging, investment is soaring, incomes are rising, inflation has been defeated,” he told the gathering of the world’s political and financial elite. “We are the hottest country anywhere in the world.”
Presidential hyperbole aside, the world’s most important economy is barrelling into 2026 with growth levels far exceeding the expectations of most economists when Trump returned to office a year ago.
“Most advanced economies would be thrilled to have the US growth numbers,” said Jason Furman, professor at the Harvard Kennedy School and a former adviser to Barack Obama.
Official statistics released this week showed annualised GDP growth in the third quarter of 2025 of 4.4 per cent. The Atlanta Federal Reserve’s running forecast sees a pick-up to 5.4 per cent in the final quarter of 2025. Excluding the Covid recovery, that would mark the strongest economic expansion in over a decade.
This powerful performance comes in spite of a blitz of economic shocks since Trump returned to power — the bulk of them self-inflicted. The president’s trade wars, punctuated by cycles of escalation and reversal, have been coupled with a market-shaking clash with the Federal Reserve.
On top of this has come a record-long government shutdown and public battles with close allies culminating in the stand-off over Greenland. Faith in dollar assets has been shaken, prompting major investors such as Pimco to diversify into other markets.
The risk of another sudden move from Trump knocking the economy adds to concerns about a rebound in inflation, and whether the AI boom powering US growth is sustainable. But for now, the economic momentum is strong.
“Anybody who says we do not have a boom in a large part of the economy is wrong,” said Adam Posen, president of the Peterson Institute for International Economics. “Right now the US has on balance, much to much going for it despite many, many self-inflicted wounds.”
But he added: “Over time shooting oneself in the limbs will slow you down even if you miss your chest.”
In Washington, Trump’s advisers have little doubt the economy is approaching full-blown boom territory — even if an anticipated boost in fourth-quarter growth is partly driven by trade swings.
“If it turns out Q4 growth is 5.4 per cent even with the shutdown, it could have even been 6 or 7 without it,” Joe Lavorgna, counsellor to US Treasury secretary Scott Bessent, told the FT. “Those are the sorts of numbers that you see coming into a boom.”
The administration is making clear it wants to juice the recovery even further in 2026 by pushing for lower interest rates alongside a fiscal expansion.
Yet despite the strong headline numbers, many economists warn that the economic expansion is fragile. Trump’s desire to run the economy “hot” risks rekindling rapid inflation, which could puncture the mood of ebullience.
US growth is also heavily reliant on booming AI investment. If the tech sector’s returns fail to match investor expectations, a painful stock market reversal could lie ahead, with far-reaching effects for household wealth and consumption.
The big hope is that productivity continues to improve, driven by AI, making the rapid pace of growth sustainable and reducing the risk of overheating, as the US saw for a period during the tech boom of the 1990s.
“Looking at just the productivity numbers, they are blowing away expectations,” said EJ Antoni, chief economist at the rightwing Heritage Foundation, who Trump tapped last year to run the Bureau of Labor Statistics, before withdrawing the nomination.
“Provided that the tax reforms, regulatory reforms and energy reforms continue, I don’t think there’s any reason why these levels of economic growth would not be sustainable.”
The IMF this week forecast GDP growth of 2.4 per cent in 2026, an upgrade of 0.3 percentage points compared with its previous outlook in October, and well ahead of the US’s G7 partners. It is now predicting stronger growth than it was in January of last year, before Trump unleashed his trade wars. Goldman Sachs analysts predict business investment growth exceeding 5 per cent.
Trump’s decision to back down from threats to increase tariffs on European partners has helped quell one obvious risk to that outlook, with analysts predicting the growth drag from last year’s levies will continue to fade.
Marco Casiraghi of Evercore ISI, said the most recent US data “support the view of a bullish macroeconomic outlook for the US, with well-behaved underlying inflation, solid growth and a stabilising labour market”.
The administration is seeking to drive growth higher, as it demands lower interest rates from the Fed and slashes regulations alongside higher spending and tax cuts put in place by the president’s flagship “One Big Beautiful Bill”.
But the confluence of high growth with yawning budget deficits of about 6 per cent of GDP in coming years looks unsustainable, warn some economists, stoking concerns about a potential rebound in inflation.
“It is the intent of this administration to have a very hot economy,” said Gita Gopinath, a former top IMF official.
“Everything points to an economy where the demand could be quite strong and therefore inflation could rise much more meaningfully. And we also haven’t seen the full pass-through of tariffs into consumer prices. That also goes in the direction of higher inflation.”
The IMF has also warned that much will depend on whether AI profits vindicate their heady stock market valuations.
Valuations are not as elevated as in the dotcom boom, but the total market capitalisation of US stocks is now higher relative to GDP — at 226 per cent versus 132 per cent in 2001.
A drop in AI investment coupled with a “moderate correction” in tech stock valuations could knock global growth by about 0.4 percentage points this year, according to the IMF’s analysis. “Even a more modest correction could have a sizeable effect on overall consumption,” the fund cautioned.
A bigger problem for Trump could be that many Americans are still not feeling the boom, as high prices continue to bite. A New York Times Siena poll this week found just 40 per cent of people approved of the president’s handling of the economy, while 58 per cent disapproved.
Consumer confidence fell in December for the fifth straight month, according to the Conference Board, reflecting apprehension about job prospects and income growth. Hiring in 2025 was the weakest since Covid.
Real income growth remains subdued, and robust spending has coincided with a declining savings rate, leaving household finances less secure.
With the midterm elections looming later this year, Trump is seeking to convince voters of his success story, launching a weekly road trip, starting in Iowa this week, to sell his economic message.
Furman of Harvard said there was no doubt that the economy was in “much better shape” than people were expecting back in April and May, after Trump launched his so-called liberation day tariff fusillade.
But he warned against overstating the health of the US economy, citing murky official data and distortions from wild swings in trade in 2025, with the full picture unlikely to become clear for several months.
“If you think we’re in some sort of new golden age, I’d see no justification for that in the data.”
Data visualisation by Ian Hodgson in Washington