Treasury Official Backs Fed Rate Cuts In 2026, Expects US Economy To Grow Around 3% Next Year: Report

• Making the case for rate cuts, Lavorgna stated that, coupled with lower rates and manufacturing investments, the U.S. will “build a whole lot more next year.”
• He added that the fourth-quarter growth could come in around 3%, which would put the 2025 growth at just under 3%.
• The International Monetary Fund’s latest outlook pegs the U.S. economy’s growth at 2% in 2025 and 2.1% in 2026.

Joe Lavorgna, counselor to Treasury Secretary Scott Bessent, reportedly backed further interest rate cuts in 2026 while expecting the U.S. economy to grow by about 3% next year.

During an interview with Yahoo Finance, Lavorgna stated that the Federal Reserve can cut rates next year even as the U.S. economy continues to show resilience, after a report by the Bureau of Economic Analysis showed that the Gross Domestic Product (GDP) grew at an annualized rate of 4.3%, higher than the Dow Jones forecast of 3.2%.

He added that if the U.S. economy continues to grow at 3% in 2026 with supply-side gains, that will result in lower inflation. In this light, if the Fed keeps interest rates steady, that will result in a restrictive monetary policy.

“So, the Fed can continue to lower rates. The Fed should lower rates based on its own estimates of where our star is, the neutral rate, and based on the fact that interest-sensitive activity is still extraordinarily weak, and that's where monetary policy has the most impact,” Lavorgna said, according to the report.

According to data from the CME FedWatch tool, the probability of a 25-basis-point rate cut in January is now 13.3%, down from 24.4% a week ago.

The Case For Rate Cuts

Making the case for rate cuts, Lavorgna stated that, coupled with lower rates and manufacturing investments, the U.S. will “build a whole lot more next year.”

He added that the fourth-quarter (Q4) growth could come in around 3%, which would put the 2025 growth at just under 3%.

The International Monetary Fund’s latest outlook pegs the U.S. economy’s growth at 2% in 2025 and 2.1% in 2026.

Trump’s Expectations From Fed Chair

Reacting to the U.S. economy’s better-than-expected growth in the third quarter (Q3), President Donald Trump on Tuesday stated in a post on Truth Social that he wants the next Fed Chair to lower interest rates if the markets are doing well.

“I want to have a Market the likes of which we haven’t had in many decades, a Market that goes up on good news, and down on bad news, the way it should be, and the way it was,” he said, while adding that inflation will take care of itself.

Meanwhile, U.S. equities were mixed in Wednesday’s pre-market trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.01%, the Invesco QQQ Trust ETF (QQQ) gained 0.03%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) fell 0.05%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bullish’ territory.

The iShares 7-10 Year Treasury Bond ETF (IEF) was up 0.1% at the time of writing.

Also See: Ryan Detrick Says Santa Rally Likely This Time After Not Showing Up For Past Two Years

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