MY TURN: Cross currents in a snowless winter

It is the season for contemplating the year ahead, and one embarks on this effort with trepidation after the chaos of 2025 — Liberation Day on April 2, the day after National Economists Day, vitriolic attacks on the Fed chairman, a massive surge in AI-related investment and OBBBA. The year 2025 saw GDP growth close to 2024 (final data is not out yet), but a dramatic slowing in job growth, 48,000 per month, down from 168,000 in 2024. About 77% of the annual job gain was in healthcare. Federal employment fell by 277,000 over the year. The supply side of the labor market was disrupted by deportation, fear and closed borders. Inflation was 2.7% at year end, down a little, but above the Fed’s target and outside Americans' comfort zone, judging by the angst in polls. The data is tainted by the shutdown, which interrupted the data-collecting process — no October unemployment rate or price data.

Entering 2026, there are things that suggest continued growth — investment incentives atop the AI investment saga, falling interest rates, continuation of and expansion of 2017’s tax cuts and three years of double-digit equity gains with the accompanying wealth effect. AI holds promise for productivity, helping to offset the aging labor force. (The oldest Boomers turn 80 this year.) However, the continued tariff volatility, supply chain interruptions, diminished labor force growth and Fed attacks work the other way. Increasing uncertainty is a drag on decision-making and performance. Should there by a stock market correction, the wealth effect could go into reverse — net worth of households and nonprofits rose by $6 trillion in Q3 of 2025. January has brought renewed attention to Greenland and, ever so briefly, the idea of tariffs against those who opposed U.S. imperial intentions (our erstwhile allies). This threatens to escalate tensions in the trade arena as well as unraveling the U.S.-Europe relationship. In addition, threatened 100% tariffs on Canada if they deal with China increases uncertainty and threatens the outlook. (Stock up on aluminum and lumber!)

The Federal Reserve continues to be in the news in 2026, with the chair now under investigation after months of attacks and insults. A hard-earned lesson of the last century is the importance of an independent central bank as a bulwark to contain inflation. The bipartisan blindness to the Federal deficit, combined with a subservient central bank, is a prescription for inflation. This is one reason long rates have been sticky — even rising, when the Fed cut its target rate. Chair Powell’s term as chair ends in May, but his board appointment goes until 2028. The courts will determine if the president can remove Governor Cook. How this all plays out has serious long-term implications for the economy that eludes 30-second sound bites and bumper stickers. The target rate was held steady at the Fed’s Jan. 27-28 meeting.

The U.S. economy has displayed amazing resilience in the face of the post-pandemic increase in interest rates, disinflation, the shocks of tariffs on and off and churned fiscal policy. The pass-through of the tariffs has not fully run its course and the Supreme Court could upend some of the levies. Housing has been in the doldrums, but affordability has started to increase with weakening prices, interest rates declines and rising incomes. Affordability is getting attention with proposals to allow more tapping of retirement accounts for down payments, Fannie and Freddie buying $200 billion in mortgage-backed securities and a symbolic proposal to limit large firms from buying homes to rent. The rebound will be slow.

The year ahead is full of possibilities on the upside and the downside. Policy excitement, foreign and domestic, Federal Reserve developments, court decisions and technological change will boost or retard our performance with GDP growth in 2-2.5% range and inflation near 2.5-3%.

Idaho sailed through 2025 with 2.1% wage and salary employment growth, but experienced slower job growth as the year went on, as did the nation. The recently released population estimates had Idaho as the second fastest growing state at 1.4%, just behind South Carolina and ahead of North Carolina. This was driven by net migration (COW) in California, Oregon and Washington. Idaho is expected to continue to grow in 2026 at a pace similar to 2025, but stay tuned for national policy shocks a la Venezuela and Minneapolis.

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John W. Mitchell is a Coeur d'Alene resident.