Brian Jacobsen, Chief Economist at Annex Wealth Management, joins TheStreet to explain what higher rates mean for a possible recession in 2025.
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00:00So, Brian, if rates are going to be higher for longer,
00:03what does that do to the economic picture for 2025?
00:07We already have housing still struggling,
00:09manufacturing is in a recession.
00:11We just got some new data how consumers
00:14are becoming more delinquent on their credit card debt.
00:18So if rates are going to be higher for longer,
00:19what does that mean?
00:21Yeah, that's a great point.
00:23And really what it means is continued economic slowing
00:26in the parts that have already experienced the slowing.
00:29The problem in the economy is that
00:31it's really broken into two parts.
00:33You have the services and especially those
00:36that are more geared towards higher net worth,
00:38higher income individuals who continue to spend.
00:41And then you have like manufacturing
00:43and then the parts of the economy
00:44more geared towards lower income individuals.
00:47And that part remains in contraction.
00:50And so I fear that in 2025,
00:53we're going to continue to see the spread widen,
00:56this gulf widen between the services and manufacturing.
01:01Now, of course, a lot could change on the policy front.
01:04We really have to monitor that.
01:06But I do think that inflationary pressures
01:09are going to continue to really abate,
01:12but those economic divergences might continue to widen.
01:17So do you get the sense or is there any concern
01:20that that economic divergence could eventually lead
01:24to an outright recession?
01:28I think that actually some parts of the economy
01:30are in a recession.
01:31When we look at manufacturing, as you pointed out,
01:34they have been in a recession probably for about two years.
01:37Now, will it actually spill over
01:40to pull down the service sector activity?
01:43And that is really going to be the balancing act for 2025.
01:47Is it the case that manufacturing will drag services lower
01:51or will services help pull manufacturing higher?
01:55I think that it's more likely
01:57that manufacturing drag services lower,
02:00but not slow enough to actually cause
02:03an outright broad-based economic recession.