How higher rates will impact recession chances in 2025

The Street

Brian Jacobsen, Chief Economist at Annex Wealth Management, joins TheStreet to explain what higher rates mean for a possible recession in 2025.

Transcript

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.

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