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: A Reverse Vibecession?
The “vibecession” was characterized by consumer sentiment being gloomier than economic data warranted. Now, optimism appears to be on the rise. Could this shift in sentiment arrive just as growth slows? Perhaps temporarily. Fourth-quarter growth is likely to get a boost as consumers and businesses front-load purchases to avoid potential tariffs in 2025. However, this could lead to a partial payback, merely shifting spending from early 2025 to late 2024. In the long run, rising optimism may spur greater investment, supporting continued economic expansion.
Inflation: It’s the Journey, Not the Destination
Reaching the 2% inflation target is achievable in the long run, but how long is the “long run”? That remains uncertain. Inflation often reflects a self-fulfilling cycle—if investors and the public believe the economy is on track to hit the target, it likely will. The real risk emerges when inflation expectations become unanchored, jeopardizing progress toward the goal. With core inflation currently at 3.3%, the target remains elusive. The journey to 2% is fraught with setbacks and detours.
Policy: A Sneak Peek
Trump has yet to take office, but we’re already seeing signs of how his tariff policies might unfold. In a swift response to the Biden administration’s curbs on chip technology exports, China imposed bans on certain rare earth metals critical to U.S. industries and launched an antitrust investigation into Nvidia. Additionally, China is likely to allow its currency to depreciate as a countermeasure to potential tariffs. Meanwhile, Canada is weighing export taxes on major goods sold to the U.S. in retaliation for proposed tariffs on Canadian products. This cycle of rapid and targeted trade retaliation highlights the escalating tensions in global trade, though there’s hope these measures remain short-lived.
Looking ahead: Benefit of the Doubt
The consensus points toward sustained U.S. economic resilience, tempered by challenges such as sticky inflation and potential modest reductions in the federal funds rate target. Wall Street analysts remain optimistic, forecasting continued market upside. This optimism isn’t unfounded; the U.S. consistently demonstrates its strength as a global leader in innovation and a reliable investment destination. However, uncertainties loom, including geopolitical tensions, evolving trade policies, and the ongoing battle to bring inflation under control. The benefit of the doubt can easily shift more towards doubt than to benefit.
