Macro & Market Musings are weekly insights on Growth, Inflation, Policy and Looking Ahead from Annex Wealth Management’s Chief Economist, Brian Jacobsen. Brian, a frequent contributor on CNBC and Fox Business News, hosts regular updates on the economy and markets. Check our events page for Brian’s next live event.

Growth: Worrywart 

Uncertainty can lead to worry. On a small scale, where the odds are low or the stakes are small, uncertainty is something we can take in stride. However, on a larger scale, worry can become a significant concern. There has been a dramatic increase in references to uncertainties on earnings calls. For now, uncertainties just bear watching. They might not become something to worry about unless fears of a consumer slowdown and abrupt, large changes to tariffs cross over from fear to reality. So far, so good, but stay tuned.

Inflation: Profits Before Prices?

Some businesses have already announced they will hike prices if their costs rise due to tariffs. Some Fed officials seem to think these businesses will be successful. Good luck with that. Consumers are choosy. They want value and a “profit-led inflation,” where firms don’t think they’ll have to sacrifice some profits if their costs rise, might not play out as those executives hope. If broad-based tariffs come into effect—which is still an “if” and not a certainty—there will be a tug-of-war between companies trying to maintain their profits and consumers trying to preserve their purchasing power. I wouldn’t underestimate the power of the consumer.

Policy: Hitting The Pause Button

With the unemployment rate low and inflation above target, the Fed has no compelling reason to keep cutting rates. There’s been a lot of talk about whether that means they have a reason to hike rates. The minutes from the last meeting suggest there’s a pretty high bar to hike. The Fed would rather keep rates paused where they are for longer than originally planned than risk the damage that could happen if they reverse course and start to hike.

Looking Ahead: Growing Up?

Over a one-year horizon, price-to-earnings ratios move with earnings expectations about half the time. When they move together, market price moves amplify the moves in fundamentals, whether positive or negative. When market multiples move opposite to the fundamentals, it provides an opportunity for companies to “grow into” their market prices. Looking ahead, it’s hard to say if the market as a whole will grow into its multiple, but under the hood, there seems to be a lot of scope for companies to prove their worth.