For Rhode Island’s business owners, homeowners and lenders, 2026 is shaping up to be a year defined in part by two questions: When will interest rates come down? And by how much?
After years of elevated borrowing costs aimed at cooling inflation, markets are signaling that the Federal Reserve will continue easing its federal fund rate – the benchmark that influences other interest rates – in the months ahead.
The current Fed rate is 3.50% to 3.75%, and many market prognosticators expect cuts of 25 to 50 basis points by the end of the year, offering tentative relief across the banking sector. The Federal Open Market Committee’s next meeting, during which the federal funds rate could be modified, is Jan. 27-28.
Local bank executives caution that any Fed moves may not affect all borrowers equally or immediately.
At Centreville Bank, Jillian J. DeShiro, executive vice president and chief financial and operating officer, says the focus is less on forecasting the Fed’s next move than on preparing for multiple scenarios.
“We don’t try to predict interest rates,” DeShiro said. “We always tell customers: Focus on whether the investment makes sense for your business. If it does, you move forward. If it doesn’t, you don’t. You can’t build a strategy on guessing what the Fed is going to do.”
Across Rhode Island, a similar risk-aware posture is shaping how banks approach 2026. At The Washington Trust Co., Edward O. “Ned” Handy III, chairman and CEO, said credit conditions remain strong, even as customers grow more sensitive to rates.
“Companies are in good shape. The business community is sound, and we don’t see anything in the rate environment that suggests being in business is going to become more difficult,” Handy said.
Handy said that lower short-term rates could stimulate growth, particularly for businesses that rely on lines of credit and other “floating-rate” borrowing.
“If short-term borrowing costs come down, that could stimulate investment,” Handy said. “It could mean it’s cheaper to build housing, cheaper to expand, cheaper to invest in equipment.”
DeShiro said Centreville sees similar dynamics among small businesses weighing expansion or equipment purchases.
“A lot of our customers are small, local businesses,” she said. “They’re watching rates, they’re watching their cash flow, and they’re trying to decide when it makes sense to move forward.”
But while some businesses may see benefits relatively quickly, relief may come more slowly for consumers. Mortgage rates, Handy noted, are closely linked to the 10-year Treasury note yield – not the Fed’s short-term benchmark – and the yield has remained high.
“There’s a hope that short-term rate reductions will result in mortgage rates coming down, but that’s unproven,” Handy said. “The 10-year has been pretty stubborn.”
That distinction shapes how Centreville talks with customers about expectations, DeShiro said.
“People hear ‘rate cuts’ and assume everything gets cheaper overnight,” she said. “But it doesn’t always work that way, especially with mortgages. We spend a lot of time helping customers understand what’s actually tied to what.”
At Navigant Credit Union, Michael Mattone, chief retail banking and experience officer, said members remain highly rate-conscious but increasingly prioritize flexibility.
“On the deposit side, we’re seeing more of a shift toward liquidity rather than locking funds in for long terms,” Mattone said. “A lot of the competitive certificates [of deposit] right now are skewing shorter, which tells you people are still unsure about where rates are headed.”
On the lending side, higher rates have cooled some appetite but have not eliminated demand, particularly as cost-of-living pressures persist, he said.
“With inflation not as bad as it was but still high, we’re seeing more interest in things like debt consolidation and home equity as people look for access to liquidity,” Mattone said.
Commercial demand also reflects caution. Handy said some companies are delaying borrowing, hoping rates will fall further.
“Why borrow at today’s rate when there’s a good chance it’s cheaper tomorrow?” he said.
Centreville is seeing similar timing questions, particularly in commercial real estate and longer-term projects.
“Some deals are taking longer,” DeShiro said. “Not because they don’t make sense, but because people are trying to time the environment. They’re asking, ‘Should I lock in now, or should I wait?’ ”
Mattone said home loan activity is equally difficult to predict.
“The Rhode Island mortgage market is so challenging right now,” he said. “Inventory remains low, affordability is an issue, so it’s not clear how quickly refinance or purchase activity will really pick up.”
For now, sentiment among Rhode Island bankers appears cautiously optimistic for 2026.
While few expect a return to the ultra-low rates of the past decade, most agree modest cuts could provide incremental relief – especially for businesses – without reigniting inflation.
“The hope is that rates come down in a way that supports growth without creating new imbalances,” Handy said.
