Tax cuts, cheap fuel to increase take-home pay, banker predicts
OCEAN CITY — More money in consumers’ pockets from tax cuts, less withholdings and low gas prices will offset geopolitical uncertainty, an escalating federal deficit and stubborn inflation for a strong economy in 2026.
That’s what Greg Matuson, president and CEO of Sturdy Savings, predicted in his 2026 economic forecast with the Ocean City Regional Chamber of Commerce on Jan. 22 at the historic Flanders Hotel.
Matuson started with a broad view, explaining how geopolitical affairs affect the economy, then sharpened his focus to national, regional and local conditions.
He said a year into President Donald Trump’s second term, Israel’s wars in Gaza and with Iran have de-escalated but fighting continues in Ukraine, where Russia has been waging a territorial conflict for years.
Adding to that are the U.S. takeover of Venezuela, a conflict with Iran in the Middle East and discussion of absorbing Greenland into the union have arisen.
“There’s gonna be periods of uncertainty throughout this year, and probably throughout the rest of the administration, so just keep that in mind,” Matuson said.
Trump’s imposition of higher tariffs last year has been paying off, with revenue jumping from about $7 billion in April and May to more than $30 billion by the end of 2025.
He said the cost of the tariffs is being borne by wholesalers, importers and, to a much lesser extent, consumers.
“The administration was very clear about tariffs; he didn’t want them to be passed on to consumers. I think, in large part, that’s been relatively successful.”
More money for consumers
Matuson said politically, the midterm elections in 2026 could have an effect on the economy. However, he said the larger factor is that Americans will start seeing the benefits of last year’s spending bill, which he called a stimulus to the economy.
“Refunds are going to be larger, withholdings are less starting this year. There’s a lot of stimulus in this,” he said.
Matuson called it comprehensive federal spending legislation that extends and expands key provisions affecting households and employers.
“It was designed to support growth, labor participation and domestic investment,” Matuson said. “So this is going to really sort of supercharge things going into 2026.
He also noted a lowering of Social Security taxes and the end to taxing tips and overtime wages would boost take-home pay.
“When people go file their taxes in the next few months, they’re going to realize the positive impact of this bill,” Matuson said.
The spending bill extends the Trump tax cuts from his first term, decreasing uncertainty and benefitting businesses.
“This bill makes them permanent so businesses are able to plan better and with more certainty from a long-term business planning perspective,” he said.
Matuson expects a boost in consumer spending with lower payroll taxes being withheld and greater tax returns.
He said tax cuts always lead to increases in the deficit.
“But I think the mindset of the federal government is they’re going to grow their way out of these deficits,” Matuson said.
The federal deficit has been a “significant problem” since the President Barack Obama administration, he said. It rose from about $11 trillion when he took office to about $20 trillion when he left. In Trump’s first term, it increased to $30 trillion in four years, then continued to grow to about $37 trillion under President Joe Biden.
“Persistent federal deficits increase economic uncertainty, reinforcing the importance of sound fiscal management at every level to support sustainable growth for local businesses and communities,” Matuson said.
He said Trump has been making massive workforce cuts that could help reduce that outstanding debt.
“I think you may see sort of a leveling out of this as the administration continues to work,” he said.
National picture
The banker said inflation and unemployment, which drive short-term interest rates, are the major factors affecting the U.S. economy. Also important are mortgage rates and the stock market.
Matuson said inflation historically hovers around 2 percent but rose dramatically in 2022 to about 6.5 percent, which he attributed to supply chain disruptions associated with the COVID-19 pandemic. It now has dropped to about 3 percent, so is getting under control.
“We’ve been working our way out of this. The Federal Reserve raised interest rates and it’s been declining ever since,” he said. “The good news is inflation is cooling. The challenge is rates are staying higher for longer.”
Going forward, the Fed has indicated that it believes inflation will continue to fall.
On the jobs front, Matuson said the unemployment rate started to rise from a historical low during COVID, but that is skewed by robust hiring during the pandemic.
“There was a tremendous amount of liquidity that was injected into the economy. Businesses were doing very well, and they hired a lot of people,” he said, noting the U.S. economy added 584,000 jobs last year, about half of what was created in the previous year.
Further complicating the jobs scene is the advancement in artificial intelligence.
“Companies are taking a wait-to-see approach of maybe hiring a new employee and waiting to see if they can use some sort of new tool to accomplish a new task that they may have,” Matuson said.
The Fed controls short-term interest rates and twice in recent times has dropped it to zero. While that stimulates the economy, he said, leaving it too long requires an increase, sometimes sharply over a short period.
Such is what happened after COVID.
“During this period of time, the Fed, again, waited too long to raise interest rates, and then raised them at the fastest pace in modern history,” he said, noting they went from 0 to 5.5 percent in 18 months in a bid to fight off inflation.
Matuson said the Fed cut rates at the end of 2024, at the end of 2025 and “we do expect them to cut probably toward the end of 2026, maybe one or two times.”
Long-term interest rates, which affect businesses in several ways, have not been dropping because of the escalating federal deficit.
Treasury rates are tracked in two-year, 10-year and 30-year notes. Matuson said commercial and small-business loans are usually tied to the shorter end of the curve, about five years.
The 10-year affects the mortgage market, mostly the 30-year fixed rate mortgage.
Matuson said last year while the two-year note was falling, the 10-year note “went sort of sideways.”
“The Fed controls the two-year rate. The market controls longer-term treasury rates, and because of those high deficits, long-term interest rates are not coming down. And we don’t expect that they will come down anytime soon,” he said.
The stock market ended last year up significantly, the third year in a row of double-digit gains for all of the indexes. Matuson said there was a lot of uncertainty going into March and April when the administration announced the tariffs, followed by a big correction and a short recovery.
State of New Jersey
Matuson said the state budget has gotten “really, really out of hand,” rising from a low of less than $30 billion in 2011 under Gov. Chris Christie but rising to more than $35 billion before he left office. It escalated dramatically under Gov. Phil Murphy to nearly $60 billion.
“They all spend like crazy and they don’t know how to control themselves,” he said of Garden State governors.
The Murphy administration received COVID relief money and increased the budget, then raised taxes when it not longer got the federal relief, Matuson said.
He had a grim outlook on that count.
“All of us in this room know that everything in New Jersey is significantly higher than it was prior to COVID and we continue to be taxed both at the state level and at the local level with really no sign of relief,” he said.
Like inflation, housing prices increased significantly during COVID and, while they have slowed, prices are still going up.
Matuson said cash buyers are a stabilizing force in the local market.
Last year in Atlantic County, new listings were up 8 percent, closed sales were up about 1.5 percent and the median sale price rose 10 percent. Numbers in Cape May County were similar. New listings were up a little bit, closed sales up 13 percent and median sales price rose 3 percent.
Matuson said sale prices and volume both increased last year in Ocean City.
“There was some uncertainty at the beginning of the year based on those tariffs, but that faded, and as the year went on, it was very, very active in the second half of 2025,” he said.
Total units sold were up 20 percent, volume increase 34 percent and average price rose 10 percent.
Fuel costs
Matuson said gas prices are an immediate stimulus or an immediate tax because most people buy it every week. He said the cost dropped significantly in the beginning of last year and then leveled, but has since fallen again.
“The administration has made this one of their core focus areas to continue to increase the supply of oil and gasoline and it is significantly reducing the price of gasoline for American consumers,” Matuson said. “Again, this is more money for folks to spend at local businesses or to go out to eat.”
Forecast
Matuson believes there is a solid case for growth.
“I think the tax relief that people are about to realize is going to be an important factor in growing the economy, I think employment is likely to be stable this year and I think there will be a gradual rate of relief overall,” he said. “I think consumers remain engaged and they continue to spend, I think interest rates are higher than they have been historically, but are manageable, and I think that the activity the realtors saw in the latter part of the year is likely to probably continue into 2026 and throughout the rest of the year.”
However, he’s not promising anything.
“If I’ve learned anything in banking over the last 25 years is that the big thing that happens, you never see coming. And so be ready for stuff like that, be as prepared as you can.”
By CRAIG D. SCHENCK/Cape May Star and Wave
