Full Video Transcript Below:

CAROLINE WOODS: Joining me now is Brian Jacobsen, Chief Economist of Annex Wealth Management Brian, great to have you back. Thanks so much for joining us.

BRIAN JACOBSEN: Thank you for having me. I really appreciate it.

CAROLINE WOODS: Let’s start with CPI. Consumer prices basically rose in line with expectations in August. What’s the takeaway there.

BRIAN JACOBSEN: I think the key takeaway with the CPI report is that it was nothing really all that exciting for the Fed. So it really, I think solidifies that they are likely to cut by 25% basis points next week. There was some concern going into it. If it was a little too hot, would this be a one and done kind of situation with the Fed as far as the signaling, or if it was coming in really light, would it put a 50 basis point cut really on the table. Based on the details, it is evident that there are some tariff effects showing up in the consumer basket. Not a lot though, and it’s not enough to derail the idea that the Fed is set to cut next week when they meet. But a 50 basis point cut is off the table.

CAROLINE WOODS: You think.

BRIAN JACOBSEN: I think so. They might discuss it. We’ll really have to see whether or not the Senate is able to confirm Stephen Myron to the board, because he might bring it up as a possibility. But when the chair goes in, he usually has three different scenarios laid out for them to discuss. I don’t think any one of them would include a 50 basis point cut. Some people, though, might agitate for it, so I would not be surprised if we see perhaps a dissent if Myron is on there saying that he favored a 50 basis points as opposed to a 25, but he’s probably not going to be able to persuade the rest of the committee to that view. But to your point, we haven’t yet seen the full impact of tariffs on inflation. CEOs have suggested the effects of gradual. Some haven’t even passed on higher costs to consumers yet.

CAROLINE WOODS: So does that mean inflation might get worse.

BRIAN JACOBSEN: Our view here is that inflation is likely to get a little worse before it starts getting better. It’s really interesting how the Fed keeps talking about how inflation from tariffs is like a one off. You get a one off change in prices, but it doesn’t happen all at once. Mainly because as you pointed out, CEOs are saying they’re having a hard time pushing on their cost increases to consumers. Consumers are in a position, especially lower end consumers where they can’t absorb a lot of those price increases. And I think that a lot of businesses are going to try to experiment with. Can they cut costs somehow. Can they lean on their suppliers. That will be like the first and second line of defense before they try to push those price increases on to final consumers.

CAROLINE WOODS: And we know the Fed has a dual mandate. There’s the inflation side. But then there’s also the job side. And we did see this surprise jump in jobless claims on the back of weak job numbers. So where do you stand on the economy right now. Kind of balancing the mixed signals that we’re getting with inflation data basically in line P coming in cooler than expected. But then concerns about weakness in the jobs market.

BRIAN JACOBSEN: Yeah not only did we get the increase in the initial jobless claims those continuing claim numbers continue to trend higher. So it’s not just about people losing their job. And then very quickly finding another job. That duration of unemployment has been moving higher. It’s the highest that we’ve seen I think in about four or five years. So I think that the labor market is not in a great spot. But when we think about what was versus what is and what will come, right, a lot of the economic data, it tells us about what did happen, what was going on with the labor market, where we are now. I think that we’re sort of at this turning point when it comes to the job market. A lot of the uncertainty at the beginning of the year. Those clouds have lifted a little bit. And so maybe we will find that the labor market, after a few more weeks here of heightened initial jobless claims, perhaps then we can get a little firmer footing to see some type of rebound. But it is tentative right now and there’s the focus on what’s to come. But then there’s also the focus on what’s to come in terms of the data. If we see further revisions, because we did see the Labor Department just revise last year’s job growth sharply lower.

CAROLINE WOODS: So what does this tell us about the health of the US labor market. Kind of sum it up for us.

BRIAN JACOBSEN: Yeah, I think that really what it tells us, these big revisions, it’s that 2024 that it wasn’t quite as strong as we thought it was. Right? it wasn’t as on solid of a foundation. There were probably a lot more business closings, fewer business openings, especially during the springtime in 2024, culminating in a negative payroll print in August of last year. Already slight rebound in September and then another fairly deep negative number in October. We did see then a rebound coming out of the election, but then suddenly the economy was hit by the wave of uncertainty coming out of the Trump administration. So I think that the economy, maybe we are at the point where perhaps the worst is behind us in terms of the weakness and then the uncertainty with some of those clouds clearing related to taxes, tariffs, and rates policy by the Fed. Maybe that means that we can get a little bit more solid foundation. We do need to see the fruits of the one big, beautiful bill with all those incentives for research and development, investment in property, plant, and equipment. But that’s likely to play out over time. So I think maybe a little stability when it comes to the trade picture can go a long way to start rebuilding some of that confidence that was really chiseled away at earlier this year.

CAROLINE WOODS: OK so we’ll see if we get that. The labor market revisions, though, have also raised questions about the accuracy of economic data. And we know the Fed is data dependent. So what does that mean for their decision making.

BRIAN JACOBSEN: And I do think that’s a really key point that you raised there about the data dependence of the Fed. Which data are they dependent on and is it reasonable to be dependent on it. You know, in hindsight, the Fed was vindicated, justified in doing the 50 basis point cut last year. But they didn’t have that data at that point. And when we see these types of revisions, I think that Chair Powell, he really needs to change his tune a little bit more to be paying closer attention to the outlook as opposed to just reacting to the data. Because if you’re reacting to the data as it flows in, a lot of that is just noise. We don’t really get the full picture of what actually happened until months, if not years later. So being data dependent I think can actually be quite dangerous. They really need to, I think, just be sort of have a more prudent approach to setting policy. Pay attention to markets. Markets are a great way to talk about what’s going on in the world, not just currently but more prospectively. So I’m very curious. Will Chair Powell mention data dependent quite as much in his press conference when he spoke at Jackson Hole. That was the first speech in a long time where he actually didn’t utter the phrase data dependent. We’ll have to see if this was maybe a title change for his worldview.

CAROLINE WOODS: OK, so if you’re listening to the markets and based on the data that you have seen, regardless if you want to be data dependent or not, do you think that we’re heading toward a soft landing, a hard landing, or just slower growth.

BRIAN JACOBSEN: Yeah, our view here is that it’s likely slower growth for now, especially when we look at what the market is doing in terms of the fundamentals, listening to the businesses as far as the investment that they’re making. But when we compare that then to the market prices, so paying attention to the valuations, those market multiples, it’s like you’re kind of paying a high price for good fundamentals because we do think the fundamentals are good, likely to continue improving, but not at the same torrid pace as the past. I mean, just look at like Nvidia right? When they came out and reported looking backwards, they had growth of like 100% with their revenue. It’s downshifting to 50% That’s still fantastic. But maybe that was already reflected in prices. And so when we consider the investment opportunities, we think that maybe there’s too high of hopes for these recent trends of really rapid growth to continue, that the market isn’t properly considering that there’s a likely of a downshift or some pressure for those profit margins, because even if they grow their revenues, how much of that actually accrues to the bottom line for shareholders.

CAROLINE WOODS: OK, so are you saying that consumers might be up against a weakening jobs market and potentially a stock market that’s going to sell off.

BRIAN JACOBSEN: That is our concern here. A little bit nervous in terms of where we are, especially with the biggest companies, the major indices. And so we’re trying to look under the covers a little bit for the opportunities because the consumer is still under pressure. Profit margins are probably going to come under pressure as well. And if you get margins profit margins compressing, you oftentimes get those market multiples coming down. And so if we see that combination of slower earnings growth and the margins coming under pressure reflected, then in lower multiples, that could be a double whammy for investors.

CAROLINE WOODS: OK we’ll leave it there. Brian Jacobsen, Chief Economist Annex Wealth Management. Thank you so much.

BRIAN JACOBSEN: Thank you.