The outlook for 2026 likely depends a lot on your vantage point. Similar to the economic recovery following the government economic shutdowns in 2021-2022, a bifurcated economy is beginning to emerge. Many large businesses and high-income households are on firm footing and seeing opportunities, while small businesses and lower-income households are feeling financial strain.
When it comes to the labor market, your vantage point or cup half full/empty mindset likely impacts how you see things. At this writing, the most recent Job Openings and Labor Turnover Survey (JOLTS) report for November and what it tells about the labor market could be viewed in a few ways. The layoff and discharge rate (percentage of workers who were involuntarily separated) of 1.1 percent is in line with historical averages (1.0-1.2 percent). During recessions or shocks this number can spike above 2 percent. Employers aren’t conducting widespread layoffs, so things are pretty good. At the same time, the hire rate (percentage of all jobs filled with new hires during the month) of 3.2 percent is little changed from the previous month’s print and is considered moderate to low. In strong labor markets, the hire rate is closer to 4 percent and higher. Employers are hesitant to expand, so things aren’t so good.
Generally, November’s JOLTS (released in January) revealed a slight decline in job openings but essentially held steady. Meanwhile, hiring, quitting, and layoff activity remained stable, underscoring a labor market that is cooling — but not weakening sharply. One might say the labor market is steady and consistent, another that it’s sluggish.
From a banking perspective, the big question is how the Federal Open Market Committee (FOMC) sees it. The labor market appears to be neither overheating nor deteriorating rapidly. Yet national unemployment has ticked up to 4.6 percent from 4.1 percent in June. This would seemingly suggest the first FOMC meeting in January would result in the Fed holding rates. Crook, Deschutes, and Jefferson County each saw their year-over-year unemployment rise in the most recently available data; Crook and Deschutes by 0.8 percent and Jefferson by 1.3 percent.
Regarding its other mandate (inflation) there are again different vantage points. At 2.7 percent, inflation sits above target, leading some to believe rates will not change. But since its recent peak in 2021, inflation has been coming down. And new research from the Federal Reserve Bank of San Francisco found that tariffs may lower inflation. From this perspective, one would see an early year rate cut as appropriate.
This may seem like a lot of vacillating and indecisiveness, but it goes back to where a person or business sits financially, and geographically. And like businesses and individuals, the FOMC has varying opinions. In the end, I’d expect one to three .25 rate cuts in 2026. Lower short-term interest rates will support consumer spending and small business investment — both very relevant for the Central Oregon economy. But long-term, rates are likely to remain close to what we’ve seen over the last few years. Consequently, the mortgage industry and businesses seeking to finance larger, long-term projects should brace for a similar environment in 2026.
On the topic of FOMC opinions, a major change is coming to how it views this bifurcated economy. Fed Chair Jerome Powell’s second four-year term as Chair of the Federal Reserve Board ends in May. The Trump Administration is likely to make its nomination for his replacement early this year. This nominee will see the economy as one with strong GDP growth, low unemployment, cooling inflation, and tariffs driving growth (especially with the US trade deficit recently contracting to its lowest level since 2009). With a new Chair, the second half of 2026 could see more swift and substantial rate cuts to support the Administration’s strategy of increasing revenues through growth.
Cory J. Allen is senior vice president and team leader for Washington Trust Bank in Central Oregon. He can be reached at cjallen@watrust.com. Washington Trust Bank is a Member of the FDIC and is an Equal Housing Lender.
