Bessent: GDP Growth Can Return to 3% by Year-End

Treasury Secretary Scott Bessent said US GDP growth can rebound to 3% before year-end 2026, citing AI-driven productivity and a winding Iran conflict.

Bessent told CNBC's Squawk Box on June 24 that GDP growth can reach "something with a three in front of it" before year-end 2026.
Q1 2026 GDP expanded at a 1.6% annualized rate, recovering from just 0.5% growth in Q4 2025 when a government shutdown dragged output.
Prediction markets and independent forecasters assign low probability to the 3% threshold; Goldman Sachs projects 2% GDP expansion for the year.

Lead

Treasury Secretary Scott Bessent said Tuesday that U.S. GDP growth can realistically return to 3% before the end of 2026, predicting a second-half acceleration driven by artificial-intelligence productivity gains, an easing of geopolitical tensions, and continued execution of the administration's deregulatory and energy agenda. Speaking on CNBC's "Squawk Box," Bessent told host Joe Kernen: "We can have something with a three in front of it this year."

What Happened

The forecast arrives after a difficult stretch for the U.S. economy. GDP slowed to a 0.5% annualized pace in the fourth quarter of 2025 — weighed down by a federal government shutdown and the initial shock of the U.S.-Israel military campaign against Iran — before partially recovering to 1.6% in the first quarter of 2026, according to the Bureau of Economic Analysis. For full-year 2025, growth reached 2.1%, falling short of Bessent's own 3% prediction from the prior December.

Before the Iran strikes, the Atlanta Federal Reserve's real-time tracker had pointed to growth near 3.6%. The conflict disrupted trade flows, elevated oil prices, and injected a stagflationary shock that Goldman Sachs estimated shaved at least half a percentage point from the full-year outlook. With Bessent now saying a peace deal is nearing conclusion, the administration argues the worst of that drag is receding.

The 3-3-3 Framework

Bessent has anchored the Trump administration's economic platform on what he calls the "3-3-3" plan: 3% real GDP growth, a federal deficit equal to 3% of GDP, and an increase of 3 million barrels per day in domestic oil production by 2028. On Tuesday he reiterated that all three targets remain achievable.

To close the gap to 3% growth in the second half, Bessent pointed to four converging forces: resolution of the Iran conflict, compounding gains from AI-enabled productivity, the stimulative effect of extended 2017 tax cuts, and accelerating deregulation in energy and financial services. On inflation, he argued that productivity-led expansion would not re-ignite price pressures — drawing an analogy to the technology-fueled 1990s boom in which the economy sustained above-trend growth without a material increase in inflation. "The underlying economy remains strong," he said.

On the deficit pillar, Bessent set expectations somewhat further out, saying: "I think by the end of the president's term we can be at something that looks like it could have a three in front of it — that's when you start paying down overall debt as a percent of the economy."

Macro Backdrop

The argument faces real headwinds. The PCE price index, the Federal Reserve's preferred inflation gauge, rose 3.5% year-over-year through March 2026 — 1.1 percentage points faster than a year earlier and well above the Fed's 2% target. The Federal Reserve is widely expected to hold its policy rate unchanged through at least year-end, with the next reduction not anticipated until 2027.

First-quarter data did offer some support for Bessent's thesis. Business investment surged more than 10%, driven by equipment and intellectual property spending — a pattern consistent with AI-driven capital formation. Consumer spending rose 1.4%, led by services, while goods demand remained subdued. Government spending rebounded 4.4% after contracting 5.6% in the fourth quarter. Private payroll growth in the first quarter ran at more than 2.5 times the 2025 monthly average, pointing to underlying labor-market resilience.

Market Reaction and Skepticism

Financial markets reflected considerable doubt. Kalshi prediction contracts priced in a low probability of the U.S. hitting a 3% annual growth rate for 2026. Goldman Sachs holds its full-year GDP forecast at 2%, fourth-quarter to fourth-quarter, and estimates the probability of a U.S. recession over the next 12 months at 30%, driven by elevated oil prices, above-target inflation, and constrained monetary policy.

The OECD projects U.S. inflation at 4.2% for 2026, 1.2 percentage points above pre-war forecasts — a configuration that limits the Federal Reserve's room to stimulate growth through rate cuts and that complicates the supply-side narrative Bessent is advancing.

Outlook

Bessent's path to 3% GDP growth by year-end depends on a set of conditions converging simultaneously in the second half of 2026: an Iran ceasefire holding and oil prices stabilizing, AI productivity translating into measurable output gains, deregulation unlocking private investment, and inflation trending back toward 2%. The first quarter's 1.6% rebound confirms the economy is healing after a sharp shock, but independent forecasters and market-implied probabilities continue to cluster near 2% for the full year. The pace of disinflation and the Federal Reserve's rate path will be the decisive variables in determining whether Bessent's forecast ultimately proves prescient or aspirational.