Short Answer
Both the model and the market expect unemployment to get above 5% in 2026, with no compelling evidence of mispricing.
1. Executive Verdict
- Accelerated corporate job cuts significantly impact the 2026 labor market.
- Growing underemployment signals future unemployment rate increases in 2026.
- FOMC navigates inflation-unemployment trade-off amidst a cooling labor market.
- Commercial Real Estate delinquency concerns pose risks to the 2026 economy.
- Economists project unemployment to peak near 4.7% by Q2 2026.
Who Wins and Why
| Outcome | Market | Model | Why |
|---|---|---|---|
| Above 5% | 31% | 31.5% | A significant economic slowdown and increased automation could push unemployment above 5%. |
| Above 6% | 15% | 0.4% | Persistent high inflation forcing aggressive Federal Reserve tightening could push unemployment above 6%. |
| Above 7% | 9% | 8.5% | A severe global economic downturn or a major financial crisis could drive unemployment above 7%. |
| Above 9% | 6% | 5% | A deep, protracted recession coupled with large-scale corporate bankruptcies would send unemployment above 9%. |
| Above 10% | 6% | 0.3% | A severe, multi-sector economic collapse and sustained demand shock could drive unemployment above 10%. |
Current Context
The labor market currently shows signs of stabilization with slight moderation. As of early February 2026, recent data indicates continued moderation in job growth and a slight uptick in the unemployment rate. Initial jobless claims decreased slightly to 209,000 in the week ending January 24, 2026. Federal Reserve Governor Lisa D. Cook noted on February 4, 2026, that the U.S. economy remains resilient with stronger-than-expected growth in late 2025, and the labor market has stabilized with the unemployment rate at 4.4% in December 2025. The Treasury’s February 2, 2026, statement echoed this, observing moderate job growth and a drifting unemployment rate, but suggested labor supply and demand are in balance. However, both Cook and the Treasury acknowledged risks from slowing job creation and an increase in individuals working part-time for economic reasons. The Federal Reserve’s annual stress test scenario, finalized on February 4, 2026, includes a hypothetical severe recession where the U.S. unemployment rate could peak at 10 percent, though this is not a forecast. Conversely, "The Contrarian" publication noted public anxiety and a "crisis of confidence" despite the 4.4% unemployment rate.
Most experts anticipate 2026 unemployment rates peaking around 4.5%. Economists generally project the unemployment rate to peak around 4.5% in 2026, with some forecasts, including Trading Economics, expecting 4.50% by the end of Q1 2026. Goldman Sachs Research also expects stabilization at 4.5%, though they identify it as the most uncertain piece of their 2026 outlook. The U.S. unemployment rate edged down to 4.4% in December 2025 from a revised 4.5% in November 2025. U.S. GDP growth is projected to rebound to 2.2% in 2026, with Goldman Sachs Research expecting 2.5% (Q4 year-over-year) and 2.8% on a full-year basis. ING Think revised their 2026 GDP growth forecast to 2.7%. PCE inflation is anticipated to increase to 2.7% in 2026, with the Federal Reserve expecting headline PCE inflation to slow to 2.3% by the end of 2026. The economy is estimated to need fewer than 70,000 jobs per month to maintain the current unemployment rate, though Goldman Sachs Research estimates underlying trend job growth at only 11,000 per month, which is below this breakeven rate. Upcoming events include the January jobs report on February 6, 2026, and the Q4 2025 GDP advance estimate on February 20, 2026.
Concerns about AI, "jobless growth," and inflation persist among experts. Experts widely concur that the unemployment rate will peak around 4.5% in early to mid-2026, with J.P. Morgan suggesting potential improvement in the latter half of 2026 due to prospective tax cuts and Federal Reserve rate reductions. RSM anticipates 4.5% unemployment alongside 2.2% economic growth and 2.7% inflation. Goldman Sachs Research identifies further labor market softening as a key risk, potentially leading to a "jobless growth" scenario where GDP expands but job creation remains weak or declines. Federal Reserve officials, including Governor Cook and VP Nicolas Petrosky-Nadeau, acknowledge slowing job growth but note only modest unemployment rises due to balancing labor supply and demand, with Petrosky-Nadeau expecting the rate to return to 4% later in 2026. Common concerns include the potential impact of Artificial Intelligence on jobs; while some believe it is too early for significant worker displacement, others express worries about reduced headcount and hiring. The "jobless growth" scenario is a significant concern, fueled by slowing labor supply growth and increased productivity gains. The persistence of inflation above 2% and an "affordability crunch" for lower-income consumers remains a primary economic risk, with the Federal Reserve carefully watching inflation expectations. Debates continue regarding the timing and extent of Federal Reserve interest rate cuts, with expectations of two cuts in 2026. While some economists see a decreased recession probability, the World Economic Forum’s Global Risks Report 2026 highlights an "economic downturn" as a significant global risk.
2. Market Behavior & Price Dynamics
Historical Price (Probability)
Outcome probability
Date
The price action for this market shows a clear and sustained downward trend, indicating a significant shift in trader sentiment over time. The market opened with a 54.0% probability that unemployment would exceed 5% in 2026, but the price has since fallen to a current level of 32.0%. This decline has been punctuated by sharp, news-driven drops. For instance, on January 11, 2026, the price fell 9.0 percentage points following the release of favorable December 2025 unemployment data. A similar 9.0 percentage point drop occurred on January 23, 2026, which was attributed to a broader reassessment by traders that the labor market was stabilizing, a view supported by recent commentary from the Federal Reserve and the Treasury.
The market has seen significant participation, with a total volume of 77,887 contracts traded, suggesting strong conviction behind the price discovery process. The current price of $0.32 is trading near the market's all-time low of $0.28, which is now acting as a key support level. A previous floor around the 42-47% level was decisively broken by the two significant drops in January. The overall chart suggests that market sentiment has evolved from uncertainty to a growing consensus that a major spike in unemployment is unlikely in 2026. The consistent selling pressure and reaction to economic data indicate that traders are increasingly confident in the labor market's resilience, pricing in a lower probability of the "Above 5%" outcome resolving as YES.
3. Significant Price Movements
Notable price changes detected in the chart, along with research into what caused each movement.
Outcome: Above 5%
📉 January 23, 2026: 9.0pp drop
Price decreased from 42.0% to 33.0%
What happened: On January 23, 2026, a 9.0 percentage point drop in the prediction market "How high will unemployment get in 2026?" for the "Above 5%" outcome was observed, primarily driven by a reassessment of the overall labor market outlook towards stabilization, rather than a specific social media event. Despite IMF chief Kristalina Georgieva's warning on the same day about an "AI tsunami" potentially impacting 60% of jobs globally, which would suggest an increase in unemployment concerns, the market moved in the opposite direction, indicating a stronger belief that unemployment would remain below 5%. This shift in sentiment was consistent with broader economic forecasts from late 2025 and early 2026, which generally projected a stable US unemployment rate around 4.3-4.5% for January 2026, well below the 5% threshold. For instance, weekly unemployment insurance claims data, released on January 24, 2026, showed a decrease in initial claims for the week ending January 17, suggesting a healthy labor market. Social media was not the primary driver in this instance; instead, the move was likely propelled by a collective re-evaluation of fundamental economic indicators and expert consensus.
📉 January 11, 2026: 9.0pp drop
Price decreased from 56.0% to 47.0%
What happened: The primary driver of the 9.0 percentage point drop in the "How high will unemployment get in 2026?" prediction market on January 11, 2026, was the release of favorable unemployment data. On January 9, 2026, the U.S. Bureau of Labor Statistics announced that the December 2025 unemployment rate decreased to 4.4%, falling below the market consensus expectation of 4.5%. This official data, along with the Federal Reserve's projection (reiterated around the same time) for the 2026 unemployment rate to end at 4.4%, strongly suggested that the "Above 5%" outcome was less likely. Social media activity was irrelevant to this specific price movement, as no influential posts or viral narratives related to unemployment forecasts were identified around that date.
Outcome: Above 6%
📈 January 14, 2026: 10.0pp spike
Price increased from 4.0% to 14.0%
What happened: The primary driver of the 10.0 percentage point spike in the "How high will unemployment get in 2026? Above 6%" prediction market on January 14, 2026, was likely social media activity from Elon Musk. On January 9, 2026, Musk warned of a "jobless future" due to AI, stating that artificial intelligence could surpass individual human intelligence as early as 2026 and eventually replace most human labor. This high-profile statement from a highly influential figure on social media appeared to lead the price move, causing a significant shift in market sentiment despite most traditional economic forecasts projecting 2026 unemployment rates well below 6%. Therefore, social media was the primary driver.
📉 January 13, 2026: 14.0pp drop
Price decreased from 18.0% to 4.0%
What happened: The primary driver of the 14.0 percentage point drop in the "How high will unemployment get in 2026? Above 6%" prediction market on January 13, 2026, was likely the release of the December 2025 Jobs Report on January 9, 2026. This report indicated a cooling yet stable labor market, with the unemployment rate falling to 4.4% (from a revised 4.5% in November) and nonfarm payrolls rising by 50,000, missing expectations but demonstrating resilience. This strong jobs report likely reduced market participants' expectations of the unemployment rate exceeding 6% in 2026. Social media activity from key figures or viral narratives was mostly irrelevant, as no impactful posts around January 13, 2026, directly contradicting a high unemployment forecast were identified, with Elon Musk's more speculative comments on AI and jobs appearing later in the month.
4. Market Data
Contract Snapshot
Based on the provided page content, there is insufficient information to summarize the contract rules. The content only states the market question: "How high will unemployment get in 2026? Odds & Predictions" and navigation links. It does not provide details on YES/NO resolution triggers, key dates/deadlines, or any special settlement conditions.
Available Contracts
Market options and current pricing
| Outcome bucket | Yes (price) | No (price) | Implied probability |
|---|---|---|---|
| Above 5% | $0.31 | $0.70 | 31% |
| Above 6% | $0.15 | $0.86 | 15% |
| Above 7% | $0.09 | $0.92 | 9% |
| Above 8% | $0.07 | $0.96 | 7% |
| Above 10% | $0.06 | $0.95 | 6% |
| Above 9% | $0.06 | $0.96 | 6% |
| Above 12% | $0.05 | $0.96 | 5% |
| Above 15% | $0.03 | $0.98 | 3% |
| Above 17% | $0.02 | $1.00 | 2% |
| Above 20% | $0.02 | $0.99 | 2% |
Market Discussion
Discussions and debates regarding the potential unemployment rate in 2026 largely center on an expected rise in the first half of the year, with expert opinions generally predicting a peak around 4.5% . For instance, J.P . Morgan and Moneywise anticipate "uncomfortably slow growth" in the labor market during early 2026, with unemployment potentially peaking at 4.5%, while suggesting a possible improvement in the latter half due to anticipated tax cuts and Federal Reserve rate reductions.
5. How Will Accelerated Job Cuts Impact the 2026 Labor Market?
| H1 2025 Total Layoffs (All Sectors) | 675,000 (Challenger, Gray & Christmas) |
|---|---|
| Technology Sector H1 2025 Layoffs | 205,000 (Challenger, Gray & Christmas) |
| Federal Reserve 2026 Unemployment Projection | 4.4% by the end of 2026 |
The first half of 2025 marked a significant acceleration in corporate job cuts, particularly in key sectors. There was a notable surge in reductions, especially within the Technology and Financial sectors, which together accounted for over 45% of all job cuts. Specifically, the technology sector saw 205,000 layoffs, while the financial sector recorded 103,000 reductions. This trend indicates a decisive breakdown of the 'labor hoarding' thesis, as companies prioritized profit and efficiency over talent retention. In the technology sector, these cuts were primarily driven by AI-driven automation, market saturation, and fiscal discipline. The financial sector's reductions were influenced by regulatory pressures, interest rate uncertainty, and AI/ML integration.
Structural job cuts suggest higher future unemployment rates. These sustained, structural job cuts are expected to exert upward pressure on the U.S. unemployment rate in 2026. Although the Federal Reserve projects the unemployment rate to remain around its current level, reaching 4.4% by the end of 2026, and America's Credit Unions forecasts a rise to 4.6% in 2026, the leading layoff data suggests a potentially higher peak. The analysis indicates that displaced workers may not be quickly reabsorbed into the labor market, making scenarios where the peak unemployment rate surpasses 4.5% more probable than current consensus forecasts.
6. How will FOMC policy address 2026's inflation-unemployment trade-off?
| Core PCE Inflation | +2.8% (November 2025) |
|---|---|
| Unemployment Rate | 4.4% (December 2025) |
| FOMC Unemployment Projection | 4.4% (Q4 2026 median) |
The FOMC navigates a complex trade-off between inflation and labor. Early 2026 presents a macroeconomic environment characterized by a cooling labor market and stubbornly elevated core PCE inflation. As of November 2025, core PCE inflation stood at +2.8% year-over-year, remaining notably above the 2% target, even with the FOMC's December 2025 projections anticipating a decrease to 2.4% by year-end 2026. Concurrently, the unemployment rate stabilized at 4.4% in December 2025, exceeding the Committee's longer-run projection of 4.1%. The FOMC's description of "low job gains amid solid economic activity" suggests they view these labor market conditions as a necessary rebalancing process for achieving disinflation, rather than signaling a sharp recession.
Internal policy divergence suggests a growing "inflation-first" faction. This is evident from three dissents against an interest rate cut in December 2025, despite the 4.4% unemployment rate, and an 8-7 split among officials regarding 2026 rate cut projections. This vocal faction prioritizes restoring price stability and implicitly accepts the projected 4.4% unemployment rate through the end of 2026 as an acceptable cost. They argue that easing policy prematurely risks unanchoring inflation expectations, advocating for a high bar for further rate cuts, which would require clear, sustained evidence of disinflation before more accommodative policy is considered, ensuring contentious debates ahead.
7. How Does Underemployment Signal Future Unemployment Rate Increases?
| Part-Time for Economic Reasons (Dec 2025) | 5,341,000 people |
|---|---|
| PTER Year-Over-Year Increase | 980,000 from Dec 2024 to Dec 2025 |
| Global Jobs Gap (2026 Projection) | 408 million |
The 'Part-Time for Economic Reasons' (PTER) cohort shows significant growth, indicating labor market weakness. This key measure of underemployment reached 5,341,000 individuals in December 2025, marking a substantial increase of 980,000 over the preceding year. This surge signals a material decline in the labor market's capacity to provide sufficient hours. The upward trend, driven by factors such as 'slack work' and individuals unable to secure full-time employment, is projected to persist and potentially accelerate through the first half of 2026, with estimates placing the cohort between 5.8 million and over 6.2 million by mid-year.
A sustained rise in PTER historically signals broader labor market distress, preceding increases in headline unemployment. The significant PTER increase in 2025 suggests that businesses have begun to reduce labor costs by cutting employee hours, a trend that could lead to layoffs if economic conditions do not improve. This situation is further complicated by a general decline in job quality, underlying structural issues like skills mismatches, a 'low-hire, low-fire' hiring environment, and the increasing impact of artificial intelligence leading to 'job losses without layoffs'.
For prediction markets, the escalating PTER figure offers a crucial, potentially undervalued, predictive indicator. An over-reliance on the lagging U-3 unemployment rate could result in mispriced risk, as the labor market may be considerably weaker than headline figures suggest. Close monitoring of monthly seasonally adjusted PTER data (FRED series LNS12032194) is therefore essential. Historically, the PTER cohort crossing the 6.0 million threshold has preceded a material rise in the headline unemployment rate within two to three quarters.
8. What Do CRE Delinquency Trends Mean for the 2026 Economy?
| Official CRE Delinquency Rate | 1.56% (Q3 2025) |
|---|---|
| Overall CMBS Delinquency Rate | 7.47% (January 2026) |
| CMBS Office Delinquency Rate | 11.31% (January 2026) |
Divergent data shows a growing Commercial Real Estate delinquency concern. Official Federal Reserve data on Commercial Real Estate (CRE) loan delinquency rates (excluding farmland) held stable at 1.56% through Q2 and Q3 2025. However, this lagging data contrasts sharply with more current indicators from the Commercial Mortgage-Backed Securities (CMBS) market. The overall CMBS delinquency rate surged to 7.47% in January 2026, with the office sector showing particular stress at an 11.31% delinquency rate. This significant divergence highlights a potential brewing crisis not yet fully reflected in comprehensive bank-held loan data, indicating considerable stress in forward-looking market segments.
Regional banks face significant risks from pending CRE loan maturities. Small and regional banks are particularly vulnerable to a CRE downturn due to their high concentration of these loans. A substantial volume of CRE loans, especially within the office sector, is scheduled to mature in 2026. Many borrowers are anticipated to face severe challenges refinancing these loans given current higher interest rates and declining property values. This 'maturity wall' is expected to trigger increased loan loss provisions and tighter underwriting standards across the banking sector, potentially leading to a broader credit crunch. Such a credit constriction could disproportionately affect small and medium-sized enterprises (SMEs) that rely heavily on regional banks for financing, ultimately risking widespread layoffs in construction, hospitality, and related sectors.
Future Federal Reserve reports will clarify Commercial Real Estate's economic impact. The prediction market for 2026 unemployment reflects the tension surrounding CRE distress, with bearish forecasts anticipating a spillover into the real economy, driven by CMBS indicators and refinancing challenges. Conversely, bullish outlooks hope for contained issues, potential interest rate cuts, or successful loan modifications. The Federal Reserve's official Q1 and Q2 2026 delinquency reports, expected in late May/early June and late August/September respectively, will be crucial in resolving this market uncertainty and determining the actual economic impact of CRE stress.
9. What Do Diverging Labor Surveys Signal for 2026 Unemployment?
| 2025 Payroll Benchmark Revision | Downward by approximately one million jobs |
|---|---|
| Projected H1 2026 CES Monthly Gains | Average +110,000 jobs per month |
| Consumer Sentiment (Lower/Middle Income) | Dismal |
A significant divergence exists between Establishment and Household Survey job growth. The U.S. labor market is currently exhibiting a widening gap between the Current Establishment Survey (CES) and the Household Survey, suggesting underlying fragility despite headline job growth. While the CES projects decelerating monthly job gains of approximately +110,000 per month in the first half of 2026, the Household Survey indicates a persistent, potentially contractionary trend in the number of employed individuals. This growing gap serves as a critical leading indicator, implying that headline payroll figures may be obscuring deeper issues such as a decline in self-employment or an increase in multiple jobholders due to economic stress.
This divergence signals a weaker labor market and rising unemployment. This trend, combined with a substantial anticipated downward benchmark revision of approximately one million jobs to 2025 payrolls, strongly corroborates a weaker labor market than previously perceived. The Household Survey's persistent weakness directly erodes the denominator of the unemployment rate calculation, leading to a high probability of the unemployment rate surprising to the upside in the latter half of 2026. This dynamic, where Household Survey weakness ultimately translates into higher unemployment, is a factor prediction markets may currently be underpricing. While a slow but steady upward drift in the unemployment rate through the first half of 2026 is partially muted by a concurrent slowing of labor supply growth, a dynamic observed in late 2025, this fragile equilibrium is unlikely to hold.
10. What Could Change the Odds
Key Catalysts
The prediction market for 2026 unemployment will be influenced by several factors that could push the rate higher. Economists project a continued cooling of the labor market, with employment growth slowing to 50,000-60,000 new jobs per month and the unemployment rate potentially peaking around 4.7% in Q2 2026. This slowdown is exacerbated by corporate hiring cuts, the lagged effects of prior Federal Reserve interest rate hikes, and potential negative impacts from persistent trade tensions and tariffs, including a Supreme Court ruling on the latter. Additionally, government shutdowns could disrupt economic data and business confidence, while increasing AI adoption risks leading to workforce reductions. Elevated inflation coupled with slower real wage growth could also weaken consumer spending, contributing to higher unemployment.
Conversely, several factors could push unemployment lower. The Federal Reserve is widely expected to cut interest rates in 2026, with Morgan Stanley anticipating 25 basis point cuts in December (2025), January, and April (2026) bringing the target range to 3.0-3.25%. RSM also forecasts the Fed cutting its policy rate to 3% over the year. These cuts, along with expansionary fiscal policies and a projected 44% jump in federal tax refunds starting February 2026, are expected to stimulate economic growth. The U.S. economy is forecast to rebound, with real GDP growth projected at 1.8% by Morgan Stanley and 2.2% by RSM, picking up in the second half of the year, driven by strong consumer demand, business investment (especially in AI), and healthy corporate and household balance sheets.
Market participants will closely monitor key events throughout 2026, including Federal Reserve FOMC meetings for interest rate decisions, monthly Employment Situation Reports, and quarterly GDP Reports. Significant policy shifts could arise from the U.S. Midterm Elections in November 2026 and the potential appointment of a new Federal Reserve Chair in May 2026 following Jerome Powell's term expiration. The Supreme Court's ruling on tariffs and resolutions of government funding issues are also critical junctures that could influence economic stability and labor market conditions. The December 2026 Employment Situation Report, released January 8, 2027, and the Q4 2026 GDP Advance Estimate in late January 2027 will be highly influential for the prediction market's settlement.
Key Dates & Catalysts
- Expiration: March 09, 2027
- Closes: January 08, 2027
11. Decision-Flipping Events
- Trigger: The prediction market for 2026 unemployment will be influenced by several factors that could push the rate higher.
- Trigger: Economists project a continued cooling of the labor market, with employment growth slowing to 50,000-60,000 new jobs per month and the unemployment rate potentially peaking around 4.7% in Q2 2026.
- Trigger: This slowdown is exacerbated by corporate hiring cuts, the lagged effects of prior Federal Reserve interest rate hikes, and potential negative impacts from persistent trade tensions and tariffs, including a Supreme Court ruling on the latter.
- Trigger: Additionally, government shutdowns could disrupt economic data and business confidence, while increasing AI adoption risks leading to workforce reductions.
13. Historical Resolutions
Historical Resolutions: 1 markets in this series
Outcomes: 0 resolved YES, 1 resolved NO
Recent resolutions:
- U3MAX-22-P6.0: NO (Jan 06, 2023)
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