The Federal Reserve left interest rates unchanged in January. Here’s what it means for the economy.
Transcript:
CONWAY GITTENS: So, Brian, if rates are going to be higher for longer, what does that do to the economic picture for 2025? We already have housing still struggling. Manufacturing is in a recession. We just got some new data how consumers are becoming more delinquent on their credit card debt. So if rates are going to be higher for longer, what does that mean?
BRIAN JACOBSEN: Yeah, that’s a great point. And really what it means is continued economic slowing in the parts that have already experienced the slowing. The problem in the economy is that it’s really broken into two parts. You have the services, and especially those that are more geared towards higher net worth, higher income individuals who continue to spend. And then you have like manufacturing and then the parts of the economy more geared towards lower income individuals. And that part remains in contraction. And so I fear that in 2025, we’re going to continue to see the spread widen, this gulf, widen between the services and manufacturing. Now, of course, a lot could change on the policy front. We really have to monitor that. But I do think that inflationary pressures are going to continue to really abate. But those economic divergences might continue to widen.
CONWAY GITTENS: So do you get the sense or is there any concern that that economic divergence could eventually lead to an outright recession?
BRIAN JACOBSEN: You know, I think that actually some parts of the economy are in a recession. When we look at manufacturing, as you pointed out, they have been in a recession probably for about two years now. Will it actually spill over to pull down the service sector activity? And that is really going to be the balancing act for 2025. Is it the case that manufacturing will drag services lower, or will services help pull manufacturing higher? I think that it’s more likely that manufacturing drag services lower, but not slow enough to actually cause an outright broad based economic recession.
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