Looking ahead: What to watch for in the 2026 economy

A weakening employment sector, persistent inflation, out-of-reach housing prices and the uncertainty born of shifting international trade policies were among the hallmarks of the 2025 U.S. economy.

Will 2026 bring a reversal of fortunes for American households that have been navigating the myriad fiscal challenges in the year gone by or will it be more of the same?

Here are the economic issues we’ll be watching closely in the year ahead.

The cooling U.S. jobs sector

Hiring by U.S. businesses has slowed from the post-pandemic surge, reflecting tighter immigration controls, cooling demand and broader uncertainty about trade and global growth.

The final federal employment report for 2025 showed the U.S. jobs market ended the year on a low note even as the national unemployment rate eased a bit after hitting a four-year high in November. U.S. employers added 50,000 new positions in December, well below the 73,000 most economists were predicting and down from November’s tally of 56,000 new jobs.

The national unemployment rate came in at 4.4% last month, down from November’s 4.5%. Total job growth for 2025 was 584,000 or an average of about 49,000 new hires per month. The tally is well below the year before when U.S. employers added 2 million new positions and average monthly job growth hit 168,000.

Phil Dean, chief economist at the University of Utah’s Kem C. Gardner Policy Institute, said he’ll be keeping a close watch on jobs data in the year ahead as 2025 ended in an environment where U.S. businesses were not engaging in widespread workforce reductions but were not hiring at a significant rate, either.

“The U.S. job markets have definitely softened,” Dean said in a Deseret News interview. “Immigration controls are influencing job growth as well as overall uncertainty in the business sector.”

Dean noted Utah’s labor market is entering 2026 on somewhat better footing than most of the country with lower overall unemployment and solid hiring rates in industries like health care and construction.

What does affordability look like?

In a series of polls conducted by the Deseret News in partnership with the University of Utah’s Hinckley Institute of Politics throughout 2025, Utah residents delivered a consistent message of concern about their household budgets.

Back in October, a statewide survey found a majority of Utahns reporting that they were living paycheck-to-paycheck and 1 in 4 had even more serious struggles.

When asked to choose the best description of their current financial situation, 51% of respondents said they were managing to cover expenses but faced difficulty saving money and 25% reported they are financially strained and struggling to cover basic expenses. Less than a quarter of poll participants, 22%, said they’re financially secure and comfortably covering their living expenses.

While U.S. inflation is well down from the 40-year highs reached in 2022, the most recent federal rate is 2.7%, well ahead of the Federal Reserve’s 2% target rate. At its final meeting of last year, the Fed projected inflation would move down to 2.4% by the end of 2026.

But Mark Zandi, chief economist at Moody’s Analytics, expects the U.S. inflation rate to move the other direction, predicting the “lagged effects of higher tariffs,” will be responsible for quickening the pace of inflation in 2026 compared to 2025.

“Businesses have been slower to pass through the higher tariffs, given the uncertainty regarding where the tariffs will ultimately land and worries about getting caught up in the political buzz saw,” Zandi told Newsweek earlier this month.

Interest rates and the Federal Reserve

The Federal Reserve closed out 2025 with three straight reductions to its benchmark interest rate, moves aiming to bolster a lagging U.S. jobs market even as inflation continues to run well above the U.S. central bank’s target rate. Both sides of the monetary body’s dual mandate of maximum employment and price stability were under threat essentially throughout 2025.

Generally speaking, rate reductions help spur economic activity by reducing the cost of debt which can promote business activities like investment and hiring. Rate hikes, which increase the cost of consumer and commercial debt, quell spending and help slow down inflationary price increases.

The trio of rate reductions in the Fed’s final three meetings of 2025 reflect the monetary body’s decision to prioritize the labor side of its two-part mandate. At a press conference following its December meeting, Fed chairman Jerome Powell pointed to the policy dilemma facing committee members.

“You have one tool,” Powell said. “You can’t do two things at once.”

While most market watchers were already predicting the Fed would not make a fourth interest rate cut at its January policy meeting, chances of a rate reduction to start 2026 declined even further after the release of new federal jobs data.

“The prospect of a January Fed rate cut has all but vanished following the unexpected drop in the unemployment rate,” Seema Shah, chief global strategist at Principal Asset Management, said in a note, per CNN.

The Fed’s policy direction could be set for a change later in 2026 as Powell’s term as chairman of the monetary body ends in May. President Donald Trump’s administration has already produced a short list of likely nominees to replace Powell, all of whom have pledged alliance with Trump, who has called for a drastic lowering of the Fed’s overnight intra-bank lending rate.

The cost of housing

U.S. housing costs ran hot in 2025 and Utah continued to be among the top 10 priciest markets in the country. Utah’s median sales price rose by almost 2% to $550,000 from 2024 to 2025 while the median time on market rose from 29 days to 36 days, all of which indicate a slowing in demand, James Wood, Ivory-Boyer Senior Fellow at the University of Utah Kem C. Gardner Policy Institute, told the Salt Lake Board of Realtors earlier this month, per a report from KSL.com.

On the plus side, Dean noted that Utah rental prices have seen some decline and robust construction volumes could support further softening of the state’s rental market pricing.

The average interest on a 30-year fixed-rate U.S. mortgage loan currently stands at 6.16% according to the latest data from Freddie Mac. That rate is down .77% from this time last year but is up 0.1% from a week ago.

While many economists believe long-term interest rates could inch down in 2026, Dean said the days of low single-digit mortgages are not likely to return, mostly thanks to other economic pressures.

“I don’t think we’re going back to the era of 2.5 to 3% mortgage rates,” Dean said. “Inflation is going to drive that.”

Utah’s economic buffers

Dean noted Utah is in the unique position of hosting multiple, very large-scale development projects that could help insulate the state’s economy from the worst impacts of the ebbs and flows of the national economy over the next few years.

Those projects include the Larry H. Miller Company’s Power District development, a $3.5 billion mixed-use development on Salt Lake City’s west side that could also be home to a future Major League Baseball franchise; Smith Entertainment Group’s $3 billion downtown revitalization project; Texas Instruments’ $11 billion microchip fab plan buildout in Lehi; and the $3 billion redevelopment of the former state prison site in Draper.

“Any one of these projects, on their own, are historically large, but we have multiple happening at the same time,” Dean said. “There are plenty of broader economic risks out there ... but then, counterbalancing that, we have some of these major, major projects under way. Going forward, that’s likely to help offset other economic impacts.”