• Kevin Hassett projects the U.S. economy could grow at nearly 4% in the second half of 2026, driven by a capital-spending boom and supportive policies.
  • The forecast hinges on robust business investment and onshoring efforts, though inflation and policy risks remain key concerns.
  • Economists are divided on sustainability, with some warning of overheating amid capacity constraints.

Optimistic Outlook

Kevin Hassett, a former White House economic adviser, has signaled that U.S. GDP growth could approach or exceed 4% in the second half of 2026, citing a surge in capital spending and favorable fiscal policies. Speaking at a conference on Thursday, Hassett argued that tax incentives and deregulation are spurring a wave of business investment, particularly in manufacturing and AI-related infrastructure.

“We’re seeing a capital expenditure cycle that could boost productivity and push growth above trend,” Hassett said, according to people familiar with his remarks. He pointed to recent data showing a pickup in equipment orders and construction spending as early indicators.

Drivers and Risks

The projected acceleration is underpinned by the Biden administration’s CHIPS Act and Inflation Reduction Act, which have fueled factory construction and clean-energy investments. Private-sector advocates also highlight onshoring trends and AI adoption as multipliers. However, critics caution that labor shortages and lingering supply-chain snarls may limit output gains.

“Without a deal on immigration reform or a sudden drop in energy prices, hitting 4% is a stretch,” said a senior economist at a major Wall Street bank, who spoke on condition of anonymity. The Federal Reserve’s interest-rate stance adds another layer of uncertainty. While the central bank has signaled a pause, persistent inflation could force tighter policy, dampening demand.

Market Reactions

Bond yields ticked higher following Hassett’s comments, with the 10-year Treasury note rising 3 basis points to 4.32%, as traders priced in a stronger growth trajectory. Equities were mixed, with the S&P 500 edging up 0.2% on optimism about corporate earnings, while rate-sensitive sectors lagged.

Investors are now parsing upcoming payroll and CPI data for confirmation of the growth narrative. “If the numbers support Hassett’s view, we could see a rotation into cyclicals,” said a portfolio manager at a New York-based asset manager. “But the path is narrow.”

Broader Implications

A 4% growth rate would mark a sharp acceleration from the 2.3% pace in the first quarter, potentially reshaping the political landscape ahead of the midterm elections. The White House has seized on the forecast as validation of its economic agenda, while critics argue the gains are concentrated in capital-intensive sectors.

Hassett has acknowledged the risks, noting that trade tensions and geopolitical shocks could derail the recovery. “We’re not out of the woods,” he said. “But the foundation is there.”

Correction: An earlier version of this article misstated the quarter referenced. The forecast applies to the second half of 2026, not the full year.