It’s always challenging to predict how the economy will perform in an upcoming year. Few foresaw, for example, the trade volatility of 2025. There are a few things we do know, such as the upcoming $12 billion in bridge payments that will be distributed to farmers, including those in Iowa, by Feb. 28. Any global trade policy changes will likely affect Iowa manufacturers, especially any changes to relations with Canada or Mexico.

Much could change during the next 12 months, so we spoke with five economists who are experts in Iowa industries, to learn what they expect for 2026 and what indicators they’re watching heading into the first quarter. 

Many of the indicators now are mixed, but they say if consumers continue to spend, the Federal Reserve makes effective decisions and federal policy volatility subsides, 2026 could be more stable than 2025. In Iowa, the farm bailout will help boost the agricultural sector temporarily, and economic growth in the state will be determined by the number of workers active in the labor force. 

Agricultural sector challenges

Chad Hart, an Iowa State University economics professor specializing in agriculture, said Iowa’s farming sector is weak, but has bright spots.

“In general, the agricultural economy remains in poor shape, basically holding steady over the past year. While there are a few bright spots, mostly livestock, especially cattle, the crop side of agriculture continues to struggle with low prices and high production costs,” Hart said in an email. 

Tariffs increased the burden on farmers and the bridge assistance will help with some of the shorter-term issues, he said. 

“The tariff turmoil was mixed for agriculture. While some commodities saw significant declines in international sales – soybeans, cotton, pork – other commodities were barely impacted, or in the case of corn, export sales are currently on a record high pace,” Hart said. “The largest financial challenges have come from large to record supplies exceeding growing use, and in basic economics, when supplies exceed usage, prices fall. That’s why President [Donald Trump] listed a few reasons for the Farmer Bridge Assistance, including low prices, high costs, tariffs. The Farmer Bridge Assistance will ease some of the short-term financial pressure, ensuring farmers can pay the bills this year, but the longer-term issues of prices below production costs remains.”

Fewer federal policy swings are what Iowa needs in 2026, he said.  

“The 2026 calendar year should have a bit more economic stability, as I don’t expect as many, or as large, federal policy changes next year. More policy stability should allow some economic sectors to improve,” Hart said. “For example, in agriculture, corn exports have surged to a record pace. That should lead to improving prices if the momentum lasts long enough. For the general economy, the key piece will be consumer spending. If high income individuals keep on keeping on and low income individuals can find support in wage growth above inflation, then the U.S. economy will continue to grow.”

Christopher Pudenz, economics and research manager and economist at the Iowa Farm Bureau Federation, agreed the agricultural sector will remain split in 2026. He pointed to the U.S. Supreme Court decision on tariffs to be an important indicator for the upcoming year. Many expect the court to issue a decision in mid-2026. 

“Most legal commentators, and betting markets, expect the Supreme Court to scale back the executive branch’s use of the International Emergency Economic Powers Act to enact tariffs in the manner the administration has pursued,” Pudenz said in an email. “No matter which direction the ruling goes, the effects will reverberate through the whole economy as businesses and individuals adjust to the new information.”

Pudenz echoed Hart’s take on Iowa’s row crop challenges and livestock wins. If row crop producers don’t receive more help in 2026, many could go out of business, he added. 

“Iowa remains the most important livestock state in the country, and in 2025, the state’s cattle industry saw some of the best returns ever, while the state’s hog industry experienced better-then-expected margins,” he said. “Both industries thrived, in part, because feed costs were relatively low due to depressed corn and soybean prices. But these low corn and soybean prices have caused economic difficulties for farms that specialize in row crop production. Some farmers were able to ‘bushel their way out’ with high per-acre crop yields, but at current crop prices, many farmers weren’t able to produce enough product to cover some of the highest production costs they have ever experienced.” 

He added that mid-sized row-crop producers are feeling the greatest strain from rising input costs, as they lack the economies of scale that benefit the largest operations. If today’s negative margin environment for row crops continues, many medium-sized and beginning farmers risk being forced out of business. At the same time, soybean prices remain under pressure due to ongoing trade tensions with China, which has yet to firmly commit to purchasing the hundreds of millions of bushels of U.S. soybeans that have been discussed, Pudenz said.

The U.S. Department of Agriculture’s February Farm Income and Wealth Statistics will be one of the indicators to watch in the first part of 2026, Pudenz said. 

“This will provide a much-needed update regarding farm financial health in the United States and in Iowa,” he said. 

Pudenz said the U.S.–Mexico–Canada agreement, which is up for review in 2026, will also play a role. The USMCA affects Iowa farmers, as well as manufacturers, many of whom import and export components to and from the two countries.

“The opportunity for this review was added as part of the renegotiation of NAFTA in the first Trump administration,” he said. “[Ambassador] Jamieson Greer has indicated that agricultural trade will receive substantial attention during the process, which could benefit Iowa agricultural exports. The continuation of USMCA is absolutely essential for Iowa farmers. Iowa ranks first among all states for pork production, and the hog industry is a great example of how integrated the USMCA economies are: The United States imports large numbers of light-weight pigs from Canada to finish [i.e., fatten] domestically, and we send roughly half of the hams produced in this country to Mexico.” 

Tariff stability will be important to the Iowa economy in 2026, said Anne Villamil, Henry B. Tippie research fellow in economics and economics professor at the University of Iowa.

“If tariffs remain stable, that would be very good news for Iowa,” she said in an email. “Iowa’s first quarter gross domestic product declined 6.1% in 2025, annualized, which was one of the steepest declines in the U.S. Fortunately, growth returned. No official growth projections have been released for 2026.”

Tariff trends are vital to Iowa manufacturers, too, she said. 

“Manufacturing is important in Iowa. Tariffs have raised the prices of many inputs used by Iowa firms and constrained their export opportunities. Better trade policies and commodity prices will be important determinants of the success of this sector in 2026. 

Ernie Goss, director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister chair in regional economics, surveys rural Midwest bank CEOs monthly for a read on regional economic performance. He expects a bump in agriculture in the first half of the year. 

“Mostly in quarter two of 2026, there should be some bounce in agriculture due to the $12 billion [bridge payments],” he said. “Then it will return in the second half of 2026 to slower growth. Even without the support from the federal government, agriculture has been improving, so we’re seeing the negatives get less negative.”

Mixed signals on the federal level

Federal spending and policy changes will determine much of the economy’s performance in 2026, said Peter Orazem, interim chair and professor in the Iowa State University economics department, who focuses on labor and public economics.

“There are several clouds on the national horizon,” he said in an email. “The first is an unsustainable federal government budget picture. The long-run ratio of federal expenditures to GDP is 21%. We increase that in recessions, but even with the Great Recession, we quickly reverted back to the long-run average. We blew the budget out of the water with the pandemic and we have not reverted back, and the Congressional Budget Office projects that we will be 24% or higher [federal spending as a percentage of GDP]. Most of the increase in spending is not covered by tax receipts, and so the deficit as a share of GDP is historically high for years to come. At some point, the government will be forced to raise taxes or reduce spending, or both.”

The stock market price-to-earnings ratio has reached historic highs, which typically signals high expectations for growth, but Orazem said the high P/E ratio will likely mean low returns.

“The last time the Shiller Index was this high was just before the dot-com crash,” Orazem said. 

“Eventually, P/E ratios will fall, either because earnings increase or because stock prices fall. Predicting when bubbles burst, or even if we are in a bubble, is an unsuccessful enterprise, but historically, such high P/E ratios signal low returns on equity over the next 10 years, if not over the next year.”

Orazem also expects inflation to remain high as elevated tariffs remain. He expects the Iowa economy to flounder in 2026 because of federal trade policies. 

“At some point, the federal government will be forced to admit that the move toward across-the-board tariff increases and the abandonment of multilateral trade agreements is not creating jobs in manufacturing and is raising costs for consumers,” he said. “Until then, we will have persistent inflation above the Federal Reserve target of 2% and employment growth will continue to weaken. Iowa has been atypically disadvantaged by the anti-trade policies, and so Iowa will underperform the rest of the U.S. economy.”

The Federal Reserve’s decisions will be important in 2026, the economists said. 

“2026 is shaping up to be an interesting year for the general economy,” Hart said. “The Federal Reserve has signaled that it is worried about both inflation and the labor market. And the problem is that addressing one of these problems usually negatively impacts the other. Higher interest rates fight inflation, but lower job numbers. Lower interest rates boost job prospects, but leave inflation unchecked. The Fed, thus far, has been trying to split the difference, but most U.S. consumers are feeling pinched on both sides. High income individuals have continued life as usual and their buying power has been enough for the main U.S. economic indicators to show growth, but the struggles of low income individuals are mounting. The income divide is growing ever wider. I fear more of the same looking forward, especially as higher health care and insurance costs hit in the new year.”

In May, Trump is due to elect a new chair of the Federal Reserve to replace Jerome Powell, and that person will have much influence on the 2026 economy, Pudenz said. The Effective Federal Funds Rate, a benchmark that influences other interest rates and affects everything from car loans to mortgage rates, will likely change under the new chair, he added. 

“It is likely that the new chair, pending confirmation, will adopt a more aggressive approach to cutting federal funds rates,” Pudenz said. “This could spur additional economic investment if loan costs fall, and it could also lead to lower operating note interest rates for Iowa’s farmers. On the other hand, despite November’s encouraging reading, inflation concerns linger, and prematurely lowering interest rates could lead to another round of runaway inflation. In sum, the Fed is between a rock and a hard place of its own making.”

Villamil said policy uncertainty and the Fed chair selection are factors that she is watching in 2026. 

“I am concerned that uncertainty will continue, especially about economic policy, the price of key inputs such as energy, and geopolitics,” she said. “The U.S. is facing fiscal challenges: high levels of public debt and deficits. In addition, the president will soon choose a new Fed chair. Fed independence is crucial, especially when there are fiscal challenges. Cuts at the federal level will pose challenges for many states.”

GDP increased to 4.3% in the third quarter of 2025, despite unemployment hitting a four-year high in October. The inconsistent data makes predictions for 2026 more difficult, Goss said. 

“That was a shocker, given that we’re losing jobs at the same time when the GDP is going up,” he said. “That’s a mystery in a sense, but I think one of the answers is that investment was going up. There’s been a lot of investment into things like the data centers; you’re getting billions of dollars there.”

While the investment in data centers is helping to buoy the economy, it does not result in many long-term jobs, so there has been less of a ripple effect across the economy, he said. 

Iowa’s workforce

Pudenz said he will be closely watching Iowa labor trends in 2026, including nonfarm job growth. 

“According to a report by [Common Sense Institute] Iowa, through September 2025, Iowa has added 5,500 nonfarm jobs to its economy this year. This reversed a trend in which job growth in Iowa slowed in 2022 vs. 2021, and 2023 vs. 2022. Even worse, Iowa actually lost nonfarm jobs in 2024. Business leaders should monitor this development to see if the trend reversal continues, which would be a positive sign for the state’s nonfarm economy.”

Thousands of people left the workforce during the pandemic, with many still yet to return, Orazem pointed out. He will be watching Iowa’s labor force participation rate in 2026. 

“The U.S. has been hampered by historically low labor force participation since the pandemic,” he said. “The 1 percentage point lower labor force participation rate means we have about 1.6 million fewer workers than we would have with the pre-pandemic workforce. Iowa’s labor force has fallen by 2.6%, meaning we have about 45,000 fewer workers available. Even though we have had weak labor demand in Iowa, firms that want to hire have trouble finding workers.”

Iowa’s employment growth is behind the rest of the country, he added. 

“Employment growth in Iowa since January 2020 badly lags the rest of the U.S.,” Orazem said. “What’s more, the Iowa employment growth lags the rest of the U.S. in almost every sector, and so the weakness in the Iowa economy is not restricted to a few isolated industries. That said, Iowa has been particularly underperforming in durable goods manufacturing and finance.”

What to watch

There are several bright spots in the Iowa economy, Pudenz said. 

“At the macroeconomic level, GDP data revisions show that Iowa’s economy as a whole performed better in 2024 and the first part of 2025 than was initially estimated,” he said. “Iowa has seen some promising investments in food processing. Three prominent examples include the new JBS sow processing plant in Perry, the JBS acquisition of a meat production facility in Ankeny and the Daisy dairy processing plant being constructed near Boone.”

Iowa’s dairy industry is growing, which is good for the state, he added. 

“Iowa recently climbed into the top 10 states for dairy production. Iowa is a very attractive place for dairies to build given the availability of feedstuffs such as corn silage,” Pudenz said. “In addition to milk products, dairies produce several co-products that benefit the state’s economy, including calves for Iowa’s cattle feedlot sector. The production of all of these products and co-products generates economic activity that supports local schools, public services and nonfarm businesses.”

Villamil also plans to keep an eye on the state’s wind energy sector as tax credits for the industry end.  

“Wind energy has been a strength of Iowa’s economy. Changes to tax, permitting and regulatory policies may pose challenges going forward,” she said. 

Orazem will be watching to see how the state Legislature handles the budget. 

“The state deficit of about $1 billion was dealt with by allocating savings that were largely one-time monies given by the federal government during the pandemic,” he said. “If the state economic growth remains weak, we will not be seeing sufficient tax revenue growth to cover projected spending.”

Goss will also be watching inflation, interest rates and government spending. He expects the housing market to soften in certain parts of the country. 

“The long-run outlook for inflation is higher right now. It’s moving sideways a bit now, and that’s good, but I think the federal debt is just too large, there’s too much borrowing,” he said. “Then there’s some credit issues, as well. We’re talking about long-term inflation, long-term interest rates remaining higher. Short-term interest rates will probably move sideways to down a bit. Long-term interest rates will probably be sideways.”

Goss is also watching immigration, electricity prices and gold and silver prices. A self-described conservative economist, he said immigration policies need to be more flexible to boost workforce numbers.