What's some of the groundwork you see him laying out for 2027?

yeah as we approach the end of 2026 here we're expecting to hear from a variety of task forces that he has put together so it's covering a variety of kind of really big picture topics that are likely then going to be voted on and perhaps implemented in 2027 and there could be some what i think are good and somewhat radical changes to the way in which the fed operates not necessarily necessarily that you're going to see every every day right and I don't think it's going to be that disruptive to the markets but a lot of them number one he's talking about okay artificial intelligence let's look at productivity what are the drivers of it and what does this then mean for inflation and growth going forward he mentioned about how there can be this disconnect between what happens in the short term where maybe you get a little bit of displacement of workers maybe a little bit more inflation for memory chips and things like that.

But over the medium term to long term, it can actually give you stronger growth, more jobs and lower prices instead of higher prices.

So I expect that's something that we're probably going to hear about towards the end of this year.

The other big topic is in terms of the tools that they use.

They talk so much about the Federal Reserve's interest rate, which is the federal funds rate.

That's their target rate.

and

And so we're seeing some earnings reports come out, and it started with a bang.

Oh, yeah, so the big banks, they r- reported.

We also had a number of the semiconductor companies and those involved in it.

So on the banking side, a lot of it was Wall Street versus Main Street almost showing up in their earnings.

So let's just kind of talk a little bit about the big ones like the Goldman Sachs, the Citigroups.

They were talking about how the Main Street lending that they do, so the traditional banking side of things, net interest expense, net interest income, default rates, that's all looking okay.

It's pretty decent.

Now that we've seen Chair Ward for a little while, what's some of the groundwork you see him laying out for 2027?

And so we're seeing some earnings reports come out, and it started with a bang.

Oh, yeah.

So the big banks, they r- reported.

We also had a number of the semiconductor companies and those involved in it.

So on the banking side, a lot of it was Wall Street versus Main Street almost showing up in their earnings.

So let's just kind of talk a little bit about the big ones like the Goldman Sachs, the Citigroups.

They were talking about how the Main Street lending that they do, so the traditional banking side of things, net interest expense, net interest income, default rates, that's all looking okay.

Now that we've seen Chair Ward for a little while, what's some of the groundwork you see him laying out for 2027?

What's some of the groundwork you see him laying out for 2027? Yeah,

as we approach the end of 2026 here, we're expecting to hear from a variety of task forces that he has put together.

So it's covering a variety of kind of really big picture topics that are likely then going to be voted on and perhaps implemented in 2027.

And there could be some What I think are good and somewhat radical changes to the way in which the Fed operates, not necessarily that you're going to see every every day.

Right.

And I don't think it's going to be that disruptive to the markets, but a lot of them.

Number one, he's talking about, OK, artificial intelligence.

Yeah, and

Okay.

Right, uh, so just a little background information there.

So in France, it's been, um, uh, lots of protests, student protests, apparently over the last few years.

Maybe it's extended even longer than that.

The French government, they have been, more and more of their budget has been going towards providing, like, social assistance programs, right? Think about their pension program, healthcare, and the such, and kind of under-investing, and actually relative to the size of their economy, reducing spending on education.

And the students, you know, they're kind of tired of not having heat during the wintertime, air-conditioning during the summertime, rats and cockroaches all over the place, and so they've actually taken to the streets, and you're seeing some protests.

Now, one of the issues, obviously, it's the deficit spending and perhaps the direction as far as what's being prioritized by the government.

How much further are they gonna push this, and what is gonna be the effect overall to this?

Brian?

Yeah, it really does.

That .1% move y- or difference you wouldn't think would be that big of a deal, but it really is, especially since I think, uh, when we look at the nearer term changes, right, the month over month as opposed to the year over year numbers, it does show that inflation is continuing to be on an uptrend.

That .6% month over month for the headline, very large, but even core.

And what we were really hoping for was to see the core cooling as opposed to heating up.

So without evidence of core inflation cooling, at least on a three-month run rate basis, it really I think paints the Fed into a little bit of a corner in terms of what they've been talking about.

They want to focus on inflation.

As we take a look, what do you think could change? Because in theory, could, could the energy pop that we're seeing and the pressures be transitory? Is the Fed jumping the gun by hiking rates?

chief economic strategist dr brian jacobson will be navigating the markets very soon talking about cross currents we're talking about the fed hiking tailwinds with the midterms you know when you're hearing all of these things we'll break that down here in a second what is the question like if i'm looking at all this stuff and i'm thinking about my portfolio i'm close to retirement what is the question you should be asking your financial advisor

i think the biggest question would be am i on the right ship and am i headed in the right direction And that's one of the things to think about.

I mean, maybe I'm stretching the analogy a little bit with navigating the markets.

And you do have, I think, in this type of environment, especially in the month of October, you have a possible headwind from the Fed.

They just hiked rates and just we've looked at the data and five of the last six times that they've done that the month after the hike, it's been a little rough for the markets.

But yet you then also have a tailwind possibly from the upcoming midterm elections.

and it's not because the market is betting on what the outcome will be just that there will be an outcome and that uncertainty will resolve itself we have that date with destiny we know what that'll be but if you have that combination of a headwind and a tailwind that can create some turbulence in that type of environment if you've ever been on a boat or on a ship You want to be confident in who's navigating it and the integrity of the vessel itself.

And one of them is when a measure becomes a target, it ceases to be a good measure.

... what is the question you should be asking your financial advisor?

I think the biggest question would be, am I on the right ship, and am I headed in the right direction? And that's one of the things to think about.

I mean, maybe I'm stretching the analogy a little, but with navigating the markets, and you do have, I think, in this type of environment, especially in the month of October, you have a possible headwind from the Fed.

They just hiked rates, and just we've looked at the data, and in five of the last six times that they've done that, the month after the hike, it's been a little rough for the markets.

But yet, you then also have a tailwind possibly from the upcoming midterm elections.

And it's not because the market is betting on what the outcome will be, just that there will be an outcome, and that uncertainty will resolve itself.

We have that, uh, date with destiny.

Hm

Give me the normal person

version.

Sure.

It really translates into earnings before interest, taxes, depreciation, and amortization.

Okay.

That's why we like to use the acronym instead.

Because it takes a long time to say the entire thing.

This is where insurance pops in also, right? So if you are a key man of your household, why wouldn't you think about having insurance on that person?

Did that offer any insight?

Yeah.

A lot of times these auctions- so when the government, when they are issuing debt, they do it through this auction process, and it's very predictable, right? It's on the calendar, and they try to not make many big changes to what's being auctioned and how much.

This week has been really interesting because of what they have been auctioning, which are those 10-year notes.

And actually, today, earlier, they also auctioned some 30-year government bonds.

So if you've been watching the markets, you know a lot of the volatility has been on the bond side of, uh, the asset allocation spectrum because we've seen those yields move higher.

Now, yields are moving higher because of the amount of debt that the government has, and it needs to be financed, and the amount of debt from some of these bigger what we call hyperscalers, the companies that are investing in the data centers.

Explain.

It's home buying season usually around this time, but the mortgage rates seem to be climbing higher and higher.

Yeah, we have seen those yields moving up and it's for a variety of reasons.

It's not because of inflation expectations.

So when we look at the government bond market, you can look at the difference between inflation protected securities and kind of your normal run of the mill, what we call nominal securities.

And that can... tell you what's called a break even inflation rates.

If inflation is higher than that, you want to own the inflation protected security.

If it's lower, you want to own the nominal.

coming from?

"It's not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but their regard to their own interest."

Yes.

So that is a famous quote from Adam Smith, who is known as, like, the godfather of economics.

It was written all the way back in 1776 in his book An Inquiry into the Nature and Causes of the Wealth of Nations, sometimes just known as Wealth of Nations.

And what he was really trying to point out is that, uh, when you go into the marketplace, right, you're not going there begging.

You're not saying, "Oh, you know, out of the goodness of your heart, can you give me this?" It's about you're giving them something of value, right? You're buying it.

And in these transactions, it might seem heartless, but in a weird way, what his entire book and a lot of economics is about is how it is that when people transact like that, as long as it's fair competition, it's fully informed, you actually get good outcomes almost regardless of the motivation behind the person who's doing the transaction.

... talking about the Milwaukee framework, and I really think that's something that deserves a little attention here today, Brian.

It's not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but their regard to their own interest.

Yes, so that is a famous quote from Adam Smith, who is known as like the godfather of economics.

It was written all the way back in 1776 in his book, An Inquiry into the Nature and Causes of the Wealth of Nations, sometimes just known as Wealth of Nations.

And what he was really trying to point out is that when you go into the marketplace, you're not going there begging.

You're not saying, oh, you know, out of the goodness of your heart, can you give me this? It's about you're giving them something of value, right? You're buying it.

And in these transactions, it might seem heartless, but in a weird way, what his entire book and a lot of economics is about is how it is that when people transact like that, As long as it's fair competition, it's fully informed, you actually get good outcomes almost regardless of the motivation behind the person who's doing the transaction.

You end up with all sorts of efficiencies, the allocation of scarce resources.

And I really think that's something that deserves a little attention here today, Brian.

It's not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but their regard to their own interest.

Yes.

So that is a famous quote from Adam Smith, who is known as like the godfather of economics.

It was written all the way back in 1776 in his book, An Inquiry into the Nature and Causes of the Wealth of Nations, sometimes just known as Wealth of Nations.

And what he was really trying to point out is that when you go into the marketplace, right, you're not going there begging.

You're not saying, oh, you know, out of the goodness of your heart, can you give me this? It's about you're giving them something of value, right? You're buying it.

And in these transactions, it might seem heartless, but in a weird way, what his entire book and a lot of economics is about is how it is that when people transact like that, As long as it's fair competition, it's fully informed, you actually get good outcomes almost regardless of the motivation behind the person who's doing the transaction.

And I really think that's something that deserves a little attention here today, Brian.

"It's not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but their regard to their own interest."

Yes.

So that is a famous quote from Adam Smith, who is known as, like, the godfather of economics.

It was written all the way back in 1776 in his book An Inquiry into the Nature and Causes of the Wealth of Nations, sometimes just known as Wealth of Nations.

And what he was really trying to point out is that, uh, when you go into the marketplace, right, you're not going there begging.

You're not saying, "Oh, you know, out of the goodness of your heart, can you give me this?" It's about you're giving them something of value, right? You're buying it.

And in these transactions, it might seem heartless, but in a weird way, what his entire book and a lot of economics is about is how it is that when people transact like that, as long as it's fair competition, it, fully informed, you actually get good outcomes almost regardless of the motivation behind the person who's doing the transaction.

... talking about the Milwaukee framework, and I really think that's something that deserves a little attention here today, Brian.

It's not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but their regard to their own interest.

Yes.

So that is a famous quote from Adam Smith, who is known as like the godfather of economics.

It was written all the way back in 1776 in his book, An Inquiry into the Nature and Causes of the Wealth of Nations, sometimes just known as Wealth of Nations.

And what he was really trying to point out is that when you go into the marketplace, right, you're not going there begging.

You're not saying, oh, you know, out of the goodness of your heart, can you give me this? It's about you're giving them something of value, right? You're buying it.

And in these transactions, it might seem heartless, but in a weird way, what his entire book and a lot of economics is about is how it is that when people transact like that, as long as it's fair competition it's fully informed you actually get good outcomes almost regardless of the motivation behind the person who's doing the transaction you end up with all sorts of efficiencies the allocation of scarce resources so the the misuse of that phrase is that we have to remember that in the real world right there are all of these frictions That's why, you know, from an investing perspective here at Annex, we're always like we want a low friction approach to investing and frictions about transaction costs, taxes.

And I really think that's something that deserves a little attention here today, Brian.

... depending on whatever President Trump would say or what tariffs have been levied, but is that still the case where the war is just impacting the stock market so much?

A, a little bit less than what it used to.

It's actually seems as though [clears throat] we've been able to get a lot of oil through the Strait of Hormuz despite the war going on.

In fact, some of the analysis suggests that, uh, the tankers that are going through are able to get more crude oil through that strait than even before the war.

Now, the problem is the distillates, the refined products, and so obviously you see high gasoline prices, high diesel prices especially.

So that's really where I think the market is more sensitive to the flow of traffic through the strait because we're not really seeing the flow of the refined products.

Most people, right, they don't want crude oil on its own.

Can you describe what that is, and do you think that that's accurate or inaccurate?

So we had the unemployment tick a little bit higher, but did you think it was just right? Do you still think that there could be a strong jobs picture here when you look at this?

Yeah, thanks for having me.

I think that we do still have some positive indicators about where job growth is likely going to go over the rest of the year.

The ISM manufacturing employment index has been above 50 for about nine months in a row.

Thankfully, the employment subindex of that has also been positive.

We're seeing the ADP private sector payroll growth seeing positive low initial jobless claims.

So I think that really when I'm looking at the labor market as a whole, I can say that it's strong, even if it isn't strengthening.

Explain how so and what you expect for the next six months, or are you worried?

What are some of the big stories that came out of that quarter and what should we know about it?

Yeah, so it's hard to believe that it's already into the fourth quarter and looks like, you know, the forecast still feels a little bit of that kind of cusp between summer and fall.

But we'll have to see what happens as the year goes on here.

But looking backwards over the last three months.

I think that one of the interesting things from a market's perspective, so just looking at what happened with the broad market indicators was, again, a return to the story that we had last year and the year before, which was a lot of people talking about.

There's not a lot of what's called breadth.

to the market so when we look at the gains in the markets it was mostly driven by technology names and some communication service names now this classification that's kind of arbitrary it's mostly technology because communication services that could be like alphabet also known as google or facebook which trades under meta now the thing is when we look under the surface there was a huge divergence areas like financials home builders consumer discretionary those all really struggled so i think that from a purely markets perspective was that the market looked like from the high level we kind of held in there but when you peel it back a little bit there was some weakness and i think it was tied to a lot of the big stories that were released during the quarter do you remember where you were when the fed finally hiked rates again You know, that was kind of one of those things.

What effect is that going to have on us heading into the midterms and heading into the end of the year?

So all of these higher yields will make its way through not only the bond market, but the equities market as

Well, exactly.

And that's the thing.

When we see these movements in treasury yields, it doesn't just stay contained in treasuries.

It actually affects everything in terms of financial assets and the ability to finance things you buy every day.

Right.

And when we looked at some of the moves in the treasury market this past week, we think about that a 30 year treasury yield.

here and the secondarily at the same time on the radio president trump was talking about annihilating iran and his first response was well here comes eight dollars in diesel fuel right so and at the same time as you know trump was also bringing up the fact that he wants to limit distribution of diesel fuel from around the world so there's a lot of things that are happening because higher diesel fuel not only for my buddy and his truck but for how you get groceries to the grocery store

So all of these higher yields will make its way through not only the bond market, but the equities market as well.

Exactly.

And that's the thing.

When we see these movements in treasury yields, it doesn't just stay contained in treasuries.

It actually affects everything in terms of financial assets and the ability to finance things you buy every day.

Right.

And when we looked at some of the moves in the treasury market this past week, we think about that a 30 year treasury yield.

here and the secondarily at the same time on the radio president trump was talking about annihilating iran and his first response was well here comes eight dollars in diesel fuel right so and at the same time as you know trump was also bringing up the fact that he wants to limit distribution of diesel fuel from around the world so there's a lot of things that are happening because higher diesel fuel not only for my buddy and his truck but for how you get groceries to the grocery store

So all of these higher yields will make its way through not only the bond market, but the equities market as well.

Well, exactly.

And that's the thing.

When we see these movements in Treasury yields, it doesn't just stay contained in Treasuries.

It actually affects everything in terms of financial assets and the ability to finance things you buy every day.

Right.

And when we looked at some of the moves in the Treasury market this past week, we think about that a 30 year Treasury yield.

here and the secondarily at the same time on the radio president trump was talking about annihilating iran and his first response was well here comes eight dollars in diesel fuel right so and at the same time as you know trump was also bringing up the fact that he wants to limit distribution of diesel fuel from around the world so there's a lot of things that are happening because higher diesel fuel not only for my buddy and his truck but for how you get groceries to the grocery store

I'm just wondering, How are you thinking about this divergence between what we're seeing in the strength and the resilience of the economic data and consumer sentiment and inflation expectations right now?

Yeah, there's really that growing gap between what consumers are saying that they feel and what they're actually doing.

Now, in fairness, that S&P global PMI, I haven't seen that type of market reaction to that preliminary reading in a very long time because it is one of those things that, you know, next week it's going to be the first of the month.

And so as a result, we're going to start getting, obviously, the jobs number, the ISM manufacturing, and the following week, the ISM services.

The market oftentimes will move on those ISM numbers.

But I'm actually kind of glad that the market is responding to the S&P preliminary numbers because those have been a pretty good barometer of what to expect from growth going forward.

And it really is pointing towards strong growth, but unfortunately continued price pressure.

So can you break that down for us? What are you seeing here? I mean, are higher asset prices creating its own bifurcated economy for those who own stocks and those who are dealing with higher energy prices and borrowing costs?

But sometimes that's a tough thing to get your mind around, I

would think.

Yeah, just somewhat similar to somebody who has a home that they lived in their entire life.

Right.

They sell it, and then they drive by, and they can't stand the color they painted it or the landscaping that the new buyers did.

And when it comes to a business and if you're selling it – If you sold the house, sometimes you got to get out of the kitchen.

And that's succession planning.

Yeah.

So really the important piece is why did it happen? And of course, where do we go from here?

Oh, absolutely.

And it is not unusual to see the longer-term interest rates.

So the Federal Reserve, they control that short-term, the federal funds rate.

But those longer-term rates, they can march to the beat of their own drummer.

But those do sometimes go down when the Fed starts hiking because what it can do is signal that, well, gosh, the Fed is on the case.

They are actually concerned about inflation.

Where do you go to do that? So it's fascinating