Navigating the Fed's Dual Mandate | Bloomberg Surveillance
Summary
Market Outlook: The podcast discusses a potential shift in the economy due to new administration policies, focusing on a transformation towards investments and net exports, impacting the real exchange rate and interest rates.
Interest Rates Strategy: There is a discussion on the Fed's potential strategy of cutting rates aggressively now with the possibility of raising them later, depending on inflation trends and economic conditions.
Inflation Risks: Inflation is currently benign but could rise again next year, prompting a need for the Fed to be prepared for rate adjustments.
Fed Leadership and Policy: The conversation touches on potential candidates for Fed Chairman and the need for a unified approach to maintain inflation credibility, with a suggestion for a more fractious dialogue similar to the Bank of England.
Corporate America and Labor Market: The podcast highlights the lack of pricing power for domestic companies, leading to cost reductions primarily in the labor market, which could result in layoffs if aggregate hours worked continue to weaken.
Global Trade Dynamics: There is a significant shift in global trade, with countries moving beyond the US to diversify supply chains and trade partnerships, as evidenced by the increase in trade-to-GDP ratios outside the US.
Tariffs and Supply Chains: The discussion includes the impact of tariffs on businesses and consumers, with companies needing to adapt their supply chains and strategies to manage these disruptions effectively.
AI and Productivity: AI is seen as a significant positive force for productivity, reducing labor input and impacting hiring practices, particularly in the hedge fund and real money sectors.
Transcript
Bloomberg Audio Studios podcasts radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. a dominant const with a holistic view on the economy. Your note is breathtaking pushing against the gloom is a regime of lower rates from within the ambiguity of all those dynamics. Is it a positive trend of lower rates or a grim trend of lower rates? Um well I think the idea is the economy is under a transformation uh thanks to the policies of the new administration. Uh that transformation involves um basically rebalancing away from cons the consumer if you like towards investments net exports and uh what goes with that actually first of all is uh a weaker real exchange rate a weaker real effective exchange rate for the dollar and then as regards interest rates um it's sort of like not necessarily lower or higher however it is steeper in terms of real terms so real rates so the idea is that in the we're going to have a very low real funds rate and a relatively elevated if you like long-term real rate and so when you ask the question are rates lower there's a pivot point and the answer is yes at one end but not necessarily at the other you I hate you you sent in a 36-page PowerPoint it's nothing nothing's changed since you and I were jersey at credit years ago what is the distinctive slide in your 36 page poweroint point. What's the one our listeners and viewers need to hear about? >> Well, um, right now in terms of the evolution of, uh, the economic outlook, the main point is that inflation is relatively benign now. And if anything, it could actually go down a little bit more in the next quarter or two. Uh, however, uh, there's a lot of risk that inflation actually goes back up again uh, at the end of next year. So, the idea is that the Fed has a window to cut rates. So our sort of mantra is cut and raise. The Fed should be cutting rates aggressively. I don't disagree with Steven Myron. However, they need to be prepared to raise rates at the end of next year, if not in 2027, which sounds a little odd, but that's kind of the nature of rates. Get them down and you may have to take them back up again. >> You mentioned Mr. Myin in my conversation with uh uh Waller of Baiji and Washington State. Does Dominic Const have a favorite to be fed chairman? Uh well I I I I sort of feel um riskreward in terms of giving some sort of confidence at the uh at the long end uh sort of favors uh someone like Kevin Walsh. I I would think I know I mean I think Hasset would be would be fine too. I just think some of the ideas that, you know, the Fed needs to have a a radically uh different, you know, different approach. Uh I'm not not sure, you know, that that's going to serve uh the administration very well in terms of long-term interest rates. >> Let me get one more in. Isabelle's ready to go. The answer is, and Waller was big on British descent. You've lived the descent of the United Kingdom. There were fist fights at Cambridge when constant uh was was there. Should we have a more fractious Fed dialogue like the Bank of England? >> Um I mean doesn't doesn't hurt having uh uh uh you know friction among the different members. Absolutely not. Uh I mean uh but um you know at the end of the day that they need to uh I think absolutely they need to retain inflation credibility. Uh and to do that you probably want a more unified approach around that. >> Dominic consto this morning. Here's Isabelle Lee. Isabelle, >> let's talk about your big big thesis. 3% Fed funds rate before Powell's term ends. And that's a bold call, especially when market pricing are still hesitant when it comes to aggressive easing. What's the key catalyst for the Fed to speed things up then? >> Well, I mean, clearly, uh, the balance of risk has shifted in terms of the labor market. And I think the thing that I look at that I'm sort of uh I find very compelling uh is if you look at the unit uh um profit data for corporate America and this is kind of domestic corporate America. We're not talking about S&P of which half of it is sort of international. We're talking about domestics. There is absolutely no pricing power for domestics and you see that in the data very very little. uh and that means that all of the cost uh pressures that come from say tariffs uh that they're being absorbed effectively uh and that leads to other forms of cost reduction which is really in the labor market. So it's all very well to say that yes you know job creation is lower because you know the of the immigration thing reversing etc. But at the end of the day, companies are being obliged to cut unit costs where they can and that is on the labor side and the risk clearly is that what is currently weaker aggregate hours worked clearly the risk is they're going to be laid off at some point >> and we have Lori Logan floating removing the Fed funds target entirely and you seem to agree. What's the argument there? Well, that's a brilliant question topic and it's very interesting. >> You never say my questions are continue with >> I mean I just throw I I'll throw something out there just you know basically not a lot of people are buying treasuries let's be honest and there's a lot of treasury supply out there and when I say not a lot is obviously foreign demand seems to be waning from the traditional sources. Banks are buying more treasuries. There's definitely a whole push to get banks to buy even more through deregulation. uh but the big treasury owners believe it or not are through the basis trades. It's obviously showing up in terms of uh non-bank financial entities that are buying a lot of treasuries and in a way you know there's nothing necessarily wrong with that because uh you know there's there's liquidity risk but there's no sort of duration risk. Uh they might eventually be credit risk but you know why not have uh you know that expanding. If Lori Logan goes out and gets rid of the funds targets and targets repo, you actually take away uh a big um sort of liquidity concern for the hedge funds that are doing this trade. And in a way, it might be another avenue by which you get a lot of treasuries absorbed in non-traditional areas and you don't need to rely on the Chinese for example or the Japanese to buy our treasuries. >> Dominic Constant with us and we continue here. He's with Missouo an extended conversation for Global Wall Street. Isabelle Lee, I have real trouble with the Myerin certitude in others given the Newtonian plug and chug of the Taylor rule. We really don't know our start. I told Waller there's two our starts for this split torn under America. We don't know the output gap. How blind are we, Dominique, right now? >> Um, well, I think we're always fairly blind. Uh and but the best way to discover uh neutral rates is always is is is the way uh uh you know it's like driving the truck and you sort of know the you sort of vaguely know the direction, you know the speed and you think you're going to know where it's going to end up and if it doesn't you recalibrate. That's how our star is basically calculated. So um basically if you cut rates you know down to say 2% instead of leaving them around 3 or 3 and a half then you'll know whether the neutral rate is is substantially higher after the event. But uh you know it's a little bit hit and miss but you can you can always raise rates if you need to and that's kind of how I would see it. So the balance of risk kind of tells you you should do more. And then let's be honest there's another side to the interest rate story which isn't just about calibrating interest rates perfectly for the labor market or even inflation. There is a side of uh this rather nasty sort of debt service sort of spiral with the deficit. You you kind of you you are you know obligated to some extent to say look have shorter rates and let's maybe finance more. Go Matthew. Let's go Matthew. On debt service, how nonlinear is it? I mean, it's if it's an accelerant through a higher yield, do you have in your head where we lose the linearity of the calmness of debt service all of a sudden? Boom. >> Yeah, absolutely. It's it gets very nonlinear. Uh um you know, you take Japan. I mean, Japan has short rates in 30 years time that are like 6%. I mean, that's crazy. I mean, they they blow themselves up completely if that were to be realized. And that's in the forward markets. You take countries like France. I mean, they have big issues at the moment. Uh the US does not the US is not quite as bad as that, but it could be as bad as that if it's not careful. So, it must get on top of uh the debt service. Uh especially uh if it's finding it too hard to cut the deficit in other ways. >> What about when it comes to tariffs? Your read seems to be that tariffs are being absorbed quietly for now. We have profit margins weakening, but prices staying benign. What will happen though when consumers run out of purchasing power? >> So, well, first of all, I mean, consumers obviously have taken a bit of a hit on tariffs. I mean, clearly consumption is running you a few hundred billion below, let's say, trend. Uh, but not nearly enough to be pushed into recession. One thing to bear in mind is we've only really had half of the potential tariffs we might get. You know, the China truce is extremely important. Uh, and and if it continues, then that's that's the sort of good thing from that perspective. Uh so I think uh uh the the only other the main thing though is really that profit margins are so uh large in the US in the domestic you know US sort of economy. uh they they were large when COVID because of of egregious sort of you know pricing power if you like that uh uh companies were able to sort of extract uh really because of the fiscal stimulus and in a funny way what the tariffs are doing is by forcing these companies to to absorb them rather than pass them on to consumers. It's really that the federal government taking the money back that they indirectly gave to corporate America via the consumer and that egregious pricing. So there's a there's a there's a nice sort of holistic world that's going on. Uh and I and that's why we don't don't actually think we'll go into recession even uh even though obviously with the risk of the labor market we can perhaps avoid it. >> Dominic Costa Mazou we continue uh with him thrilled that he could join us today uh working with Steve Rashettto surviving Steve Rashettto's brilliant dissection of American GDP on a daily uh basis. We welcome all of you worldwide particularly global wall street in India in America and the Pacific Rim and the continent of course as well. I want to go back to the transfixidiveness of your work with IRA at credit Swiss years ago and you guys owned the chart of how Wall Street was so wrong modeling out higher rates. It's going to happen. These little fan we we had a time series folks with little feathers of how wrong we are right now. What does that chart look like right now? What is the bet on Wall Street that once again will be wrong? >> Well, the the the the current bet on Wall Street is that the Fed is cutting, but it's cutting, let's say, relatively slowly uh and doesn't really get to a terminal rate uh of 3% uh or so until the second half next year. So where we think the riskreward there is that the Fed does end up cutting more aggressively and you bring that forward. So you basically sort of have a sort of more aggressive if you like you know flattening out of the forward short rates but then where it kind of gets I would argue you know wrong again uh is when you get into 2027 where you have a unusual sort of almost a flat lining of the funds rates like once they come down they stay down. So, not only do they not, you know, not come down far enough, but the very fact that they're staying down for that prolonged period seems to me >> Okay. So, are you suggesting that we need to get away from 2.0% target and that we're going to have a new central bank regime in 2728 29, which is a new set higher. >> Yeah, I think the I think in the uh it it kind of depends on what the administration wants to do about inflation. I mean, whether they tolerate it or not. So uh I think in a conventional way if they tolerate say inflation up around 4% for a while and they do that because of say the debt service things then you will have a lot of you know >> are you model I got to make some news here. Are you Isabelle needs news. Are we modeling 4% inflation? >> My one of my very one of my models that I'm very proud of models 4% core CPI and rising uh in 2027. Yes. >> Wow. That's a headline for me there. >> Yeah. What about Okay, so then the market doesn't seem to be fully bought in when it comes to the Fed accelerating rate cuts. So, is that a communication issue from the Fed or is that inflation anxiety? Why do you think there's a disconnect there? >> To be honest, I think I think Pal would be much more committed to bringing rates down further if uh President Trump wasn't sort of so interfering in in in in Fed policy. I think it's almost a a kind of like a pride pride moment. he'll end up doing it, but he just can't sort of preemptively say he'll do it. That's my perspective. But >> and the shuts down the shutdowns market impact is usually limited, but you say that this time might be different. Why is that? >> Well, I mean shut shutdowns are limited if they're short. Uh but if they they're at long uh then it will it does impact consumption. >> What is long? >> Uh at least a month. And uh you know the shutdown is approaching that. And I think if it goes even longer than that, obviously you're going to see consumer spending take a hit. And and we model we we we model that relative to uh consumption trends before the shutdown and then afterwards. So clearly there is there is some impact. Yeah. Absolutely. >> Dominic Cost on AI. They say it's outside your remit. I don't buy it for a moment. I mean we got Thaylor coming in here in the uh coming up here in 30 minutes 20 minutes uh the laurate from Chicago on the behavior of the structure fine Dominic const AI and the overlay to productivity which we're not going to know for three four five 10 years >> yeah well I'm I'm a big big fan of these productivity sort of miracle stories you know through through the trends absolutely I think AI is a massive positive for productivity and it's going to go hand inhand with very little labor input which we're kind already seeing. So when I look at the G GDP, you know, I look at the expenditure side, let's say, and all that kind of translates into higher productivity, uh, you know, because of the underlying thing AI. Anecdotally, when I talk to our clients, uh, uh, basically, you know, in in in the in the real money hedge fund community, more and more are saying, you know, they're obviously using AI and they're not hiring graduates in the way that they did before. That's a really big impact in >> I mean, I look at Missou and what you're building over there. You pick up Jordan. This is like picking up, you know, some baseball player. You pick up Jordan Rochester in foreign exchange. You and Rashido have to battle over nominal GDP. Are you guys all on the same page given a 4% constant call? >> Uh, we we all always agree. It's amazing. Yeah. >> Oh, please. I mean, this it's really a hell of a team you put together there. >> Yeah. But I think the diversity of opinion is good. I mean, it challenges each of us to sort of go back and rethink and uh and refine our arguments. your future for your United Kingdom. I can't glean it reading the papers. >> Yeah, I mean it's all it's it's a little, you know, I think the future is uh um my my old schoolmate uh Nigel Farage becomes prime minister. I think it's a little bit like like the same as in uh in France with uh uh you know with with national uh you know the populism is is you know it can't be held back for too long and it's really a dysfunction of the established parties. I mean, you know, the Labor Party uh never really uh you know, it never had a massive popular vote in the first place, but unfortunately it's made a lot of missteps and it's hard to see how they're going to keep out that that the reform party. >> If Mr. Farage comes calls on his own class, his old classmate, will you look to serve as chancellor of the exjector? >> Uh, of course I would. >> Thank you, Dominic Constant with uso. Stay with us. More from Bloomberg Surveillance coming up after this. You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10:00 a.m. Eastern. >> Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. >> Yolena Schulava joins us right now and has frankly never been a more important conversation. She's with the Conference Board which goes back to 1916. Full disclosure, it was religion to my grandfather. They are different. They have a huge history of data collection and the mood and in a massive government shutdown. It's not that you're it, but you're the ones that have been tested time and time again in shutdowns. What What is your message about what's really going on is we're datalless. Well, I can guarantee you'll get another data point from the conference port next Tuesday when the CCI uh index will be released and we'll get another gauge of how consumers are feeling in this economy. And uh uh another data point uh I would like to talk about is the CEO confidence that we received last week and we that hasn't been much of an improvement on the CEO confidence front. Actually they're saying that uh you know things are probably okay but the CEO confidence is still below the 50 break uh break even level. >> Are you back testing on CEO confidence? Is it a legitimate time series? >> Absolutely. It uh tracks uh uh investment business investment and the thing that I um watch mostly is uh business investment plans. So that that's a gauge for uh telling you what happens to business investment going forward. >> Yes. And only 4% of CEOs are expecting a recession, but growth is still projected to decelerate. What's behind this cautious optimism? And what does it signal to the business cycle heading into next year? >> There's still a lot of uncertainty. There's still a lot of uncertainty about where tariffs would land. That's a lot of uncertainty about the AI impact and uh regulation and geopolitics as well. So those uh top concerns for uh you know the seauite uh uh people and I think that's that's an important uh thing to remember when you talk about outlook for next year. So the shutdown is having ripple effects not just in GDP but in confidence also. Where are you seeing the most visible signs of disruption when it comes to uh the data whether it's employment or the CPI print that's >> for us economists uh the data flow is disrupted that's it already is happening and we have much uh lower visibility in terms of how to think about the economy but in terms of the overall impact on the economy it's still moderate but it will be nonlinear so it doesn't go like oh uh one to to uh ten of a percent each week. It's nonlinear. So first week it's minimal. Second week, third week when people start missing the paychecks, that's that could uh be much more uh significant. And I think if it moves into November, we will talk a little bit more about the economic impact. >> So speaking of inflation, we may we may be heading into a hotter print this Friday. Do you think that the Fed can afford to stick to its gradual plan of easing if inflation holds above 3%. >> Absolutely. That's what Chair Powell said uh at the NAPE uh meeting last week. It was an amazing speech by uh the Fed chair and he just basically confirmed >> you know it's it's about the risks. It's about the risks to the labor market, not particular data. >> So is that their implicit target now at 3%. >> Well, that's that's a tough question. I think they still believe they can get lower but uh you know uh they're not really speaking about it explicitly. >> Yolina, thanks so much. Yolena Shilate with us with the conference board with their important data coming out. Stay with us. More from Bloomberg Surveillance coming up after this. >> This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg 11:30. >> Joining us off what I, you know, we didn't do enough on this last week, the International Monetary Fund with their uh meetings and uh all the different work. I look at the green book, the global financial stability report. It's 126 dense pages of really PhD level thinking about where are we Rahee's gone beyond that and he he joins us now on our instabilities maybe within the commit what do you think of our global financial stability right now >> hey Tom uh thank you so much for having me it's a pleasure and no I mean look I've done the global financial stability report for almost a decade now and you sort of get tuned to looking at the left tail of the distribution and what can go wrong throughout but where we are right now I think things are going pretty decently well uh I mean the big question is that and the perfect example are these IMF meetings that ended last week when you went to them 6 months ago it was all about despondence that you know there's a tariff shock and everything is going to get ripped at the seams now it's all about resilience that global economy has outperformed expectations global markets have outperformed expectations and not just us pretty broad-based. So from that perspective, things seem to be going pretty well at the margin. In terms of instability, I would still argue that the biggest risk uh in the market remains on the US bond market side >> and how inflation people are sort of passing it by. Uh but I think in my view that's a mis risk that >> the IMF does wonderful stress tests. They'll look at you know stress episodes is what they call them where they pretend bad things happen. Are we prepared Rohit right now within global wall street for the next marginal stress? >> I think to a great extent I would argue yes. The issue is that the unknown unknown is something which nobody gets prepared for. Right. But the other stress test which we saw in terms of the banking crisis in terms of the regional banks getting an issue or any stress in the treasury bond market. I think from that perspective the Fed and the policy makers are pretty prepared. the issue is more of a self goal that cutting rates at a time when the inflation is sort of picking up cyclally can take people uh by a surprise and that I think can be a source of a issue. >> So you spoke with over 20 finance ministers which is a real pulse check and one of your big takeaways was that trade is moving beyond the US and fast. What are the countries doing to reapply supply chains and why do you think investors need to take that shift seriously? No, I think uh look and this has been a fascinating stat. If you look at since 2016, which was Trump's first term, 90% of countries have seen an increase in trade to GDP. US is one of the only major countries which have seen a decline in trade to GDP and four of the fastest growing trade corridors are outside of US. So while we do make a big deal out of the US tariff situation, the reality being that other countries have been preparing for this uh event for a while now and especially when you talk to all these policy makers as you mentioned I met almost 20 finance ministers last week and the big picture feedback was that look US is extremely important for us and it's impossible to sidetrack it but at the same time US is just 15% of global imports. There is a big world outside of US that we need to partner with and now especially now we are in a transactional world we need to be a bit more mindful of. So when you go from >> Europe emerging markets everyone is signing more free trade deals everyone is trying to diversify their export base in terms of partners as well as products. I think that's a welcome development. >> Uh Rohit Goal with us thrilled to have him with us with breakout partners on our Bloomberg podcast. What a successful experiment it's been. Thank you for listening on YouTube. Subscribe to Bloomberg podcast out at YouTube and we say good morning and Rohit's India where we've had just huge huge success. Rohit I want to do an audible here. State to me the new Modi capitalism of India. Explain to me 2026 for the animal spirit of India. No, I think it's going to be the same old that look uh we have fixed a lot of the historical issues. Now we have a big bad wolf in term of President Trump and Modi is the one who is trying to safeguard the interest of Indian farmers and Indian sort of domestic houses and we got to stay the course if we want to make India great again. >> Let's stick with the region. What about China? You mentioned that China was surprisingly absent from discussions. Given its central role in global trade, what do you make of the silence? No, I think that was for me the biggest shock that one would imagine that the US China issues and China in particular would be a very big focus but honestly not really and I think there are a couple of reasons one being most of the investors have priced in that the US China skirmishes will continue for the time being there will be escalation most of it is posturing will revert back some of it so from that perspective it's going to be a slow and steady negotiation between US and China and we have we are in that segment of the Nash equilibrium that we don't want to be in the lose-do situation. I think both US and China realized that >> a big bigger focus for me was how the emerging markets are talking about the China manufacturing glut and how the over supply is sort of killing their own domestic manufacturing industries and there is a big focus to make sure that that doesn't really uh take roots >> right Rohit thank you so much Roel with us uh please please would love to see you in uh studio at some uh pointyel is with breakout capital partners stay with us. More from Bloomberg Surveillance coming up after this. This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say, "Alexa, play Bloomberg 11:30." >> Andrew Siciliano joins us. partner trading customs practice at KPMG. This could be a three-hour interview this morning. You are a licensed US customs broker. All of a sudden, everything seems arbitrary. When Isabelle Lee gets something from Dior or Hermes in Paris, she has no idea if there's going to be a customer tariff on it. Have you ever seen it this nuts? >> No. It's It's been extremely volatile, uncertain, um really complicated, too. The rules are consistently changing, Tom. So if you think about it today, there are country specific tariffs, industry specific tariffs, there's trade deals taking place, and there's a bunch of investigations that are still underway that we don't even know what the impact is going to be. >> Okay. But so it the JFK, >> okay, >> they come in a cargo plane. >> Are there people like you, licensed customs brokers, figuring out what's in each bundle? >> Well, what what a broker does, a broker will help clear the shipments, right? So they will file the customs entry with US customs. On that entry is where you declare all these tariffs. So that is the um the point of contact with customs to um disclose all the tariffs to customs. >> So the US has racked up some $80 billion in tariff revenue this year. That's more than double the last year and it looks good on the revenue side. But how are businesses and consumers actually absorbing this the cost on the ground and based on your perch are they um worried or h what's happening? >> You know it's it's a great question. It really varies. There there's there's no single answer. There are situations where prices are going up people see it right there are there are those scenarios but there's also um market conditions that are driving prices not to go up. And there's also um supplier and importer absorption where there's negotiations happening where they're absorbing the tariffs and also companies are looking for ways to mitigate and move their supply chains to avoid the tariffs. >> Right. Tell me about the dimminimous rule. I mean it's it's driving everybody everybody%. Yeah. So the dimminimous rule many many years ago was like $200 and the whole point of it was when you have these small parcel shipments, why do we want customs entries for every single small shipment? And then when the amount raised to $800, you had companies taking advantage of it. Yeah. You know, putting warehouses in Mexico and and in Canada and shipping into the US. So, a lot of US companies were at a disadvantage and lobbied against it. So, um right now it's causing a lot of turmoil cuz companies that were relying on that e-commerce benefit. >> So, just lower from 800 to pick a number. >> It's Yeah, there's it's zero now. Customs entries required for those shipments. I mean there's different types of entries but the dimminimous rule no longer exists. >> So we're clearly at an inflection point in global trade. You call this a turning point and noted that companies who treat the disruption disruption as strategy could come out ahead. What does that look like in practice though? Because okay maybe what if I'm a small business and I got myself used to the $800 >> Yeah. >> minimum. Right. So then >> so when the tariffs when the new tariffs were initially announced it it was um everyone was in mitigation mode reacting to the tariffs. There was also uncertainty. We didn't know if they were going to last. So they were just looking for the lowhanging fruit opportunities. But now we're beyond mitigation. Companies are rewiring their supply chains. They're looking at attacks and trade planning opportunities. They are looking at technology and data and AI to do scenario planning modeling. We have a tool at KPMG that does that for our clients. >> They're also looking at operating models. The customs function for years was operational. It was a border tax, clear the goods. Now they're looking at the overall structure. >> And Siciliano with us. We're going to get one more in here. We're I'm I'm very remiss on this. I got a nasty letter from the government of Mexico. Thank you for listening every morning in Mexico City. Really honored. And we don't do enough on agriculture. How are we doing on tariffs of tomatoes of avocados of bananas that I think we can't grow in America? Am I right on that Isabelle? >> That I don't know. I have to ask Chad GP. >> Okay. How are we doing on agriculture tariffs? Is it like coming? Well, there was there are tariffs for Mexico and Canada punitive tariffs under the which as you know the Supreme Court case is going to rule on soon. Um but there are also exceptions. If a good qualifies under the USMCA, they avoid that tariff. So, right now, if you meet USMCA, you could avoid the tariff. >> What's a single summation of your KPMG study on this headache of tariffs? >> It's volatile. Um, there's lots of disruption and companies need to be agile and flexible and manage through it. You can't avoid the pain. You have to manage it. >> I got I got eight more questions. Come back. Thank you so much. This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10:00 a.m. Eastern, on Bloomberg.com, the iHeart Radio app, TuneIn, and the Bloomberg Business App. You can also watch us live every weekday on YouTube, and always on the Bloomberg terminal.
Navigating the Fed's Dual Mandate | Bloomberg Surveillance
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Bloomberg Audio Studios podcasts radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. a dominant const with a holistic view on the economy. Your note is breathtaking pushing against the gloom is a regime of lower rates from within the ambiguity of all those dynamics. Is it a positive trend of lower rates or a grim trend of lower rates? Um well I think the idea is the economy is under a transformation uh thanks to the policies of the new administration. Uh that transformation involves um basically rebalancing away from cons the consumer if you like towards investments net exports and uh what goes with that actually first of all is uh a weaker real exchange rate a weaker real effective exchange rate for the dollar and then as regards interest rates um it's sort of like not necessarily lower or higher however it is steeper in terms of real terms so real rates so the idea is that in the we're going to have a very low real funds rate and a relatively elevated if you like long-term real rate and so when you ask the question are rates lower there's a pivot point and the answer is yes at one end but not necessarily at the other you I hate you you sent in a 36-page PowerPoint it's nothing nothing's changed since you and I were jersey at credit years ago what is the distinctive slide in your 36 page poweroint point. What's the one our listeners and viewers need to hear about? >> Well, um, right now in terms of the evolution of, uh, the economic outlook, the main point is that inflation is relatively benign now. And if anything, it could actually go down a little bit more in the next quarter or two. Uh, however, uh, there's a lot of risk that inflation actually goes back up again uh, at the end of next year. So, the idea is that the Fed has a window to cut rates. So our sort of mantra is cut and raise. The Fed should be cutting rates aggressively. I don't disagree with Steven Myron. However, they need to be prepared to raise rates at the end of next year, if not in 2027, which sounds a little odd, but that's kind of the nature of rates. Get them down and you may have to take them back up again. >> You mentioned Mr. Myin in my conversation with uh uh Waller of Baiji and Washington State. Does Dominic Const have a favorite to be fed chairman? Uh well I I I I sort of feel um riskreward in terms of giving some sort of confidence at the uh at the long end uh sort of favors uh someone like Kevin Walsh. I I would think I know I mean I think Hasset would be would be fine too. I just think some of the ideas that, you know, the Fed needs to have a a radically uh different, you know, different approach. Uh I'm not not sure, you know, that that's going to serve uh the administration very well in terms of long-term interest rates. >> Let me get one more in. Isabelle's ready to go. The answer is, and Waller was big on British descent. You've lived the descent of the United Kingdom. There were fist fights at Cambridge when constant uh was was there. Should we have a more fractious Fed dialogue like the Bank of England? >> Um I mean doesn't doesn't hurt having uh uh uh you know friction among the different members. Absolutely not. Uh I mean uh but um you know at the end of the day that they need to uh I think absolutely they need to retain inflation credibility. Uh and to do that you probably want a more unified approach around that. >> Dominic consto this morning. Here's Isabelle Lee. Isabelle, >> let's talk about your big big thesis. 3% Fed funds rate before Powell's term ends. And that's a bold call, especially when market pricing are still hesitant when it comes to aggressive easing. What's the key catalyst for the Fed to speed things up then? >> Well, I mean, clearly, uh, the balance of risk has shifted in terms of the labor market. And I think the thing that I look at that I'm sort of uh I find very compelling uh is if you look at the unit uh um profit data for corporate America and this is kind of domestic corporate America. We're not talking about S&P of which half of it is sort of international. We're talking about domestics. There is absolutely no pricing power for domestics and you see that in the data very very little. uh and that means that all of the cost uh pressures that come from say tariffs uh that they're being absorbed effectively uh and that leads to other forms of cost reduction which is really in the labor market. So it's all very well to say that yes you know job creation is lower because you know the of the immigration thing reversing etc. But at the end of the day, companies are being obliged to cut unit costs where they can and that is on the labor side and the risk clearly is that what is currently weaker aggregate hours worked clearly the risk is they're going to be laid off at some point >> and we have Lori Logan floating removing the Fed funds target entirely and you seem to agree. What's the argument there? Well, that's a brilliant question topic and it's very interesting. >> You never say my questions are continue with >> I mean I just throw I I'll throw something out there just you know basically not a lot of people are buying treasuries let's be honest and there's a lot of treasury supply out there and when I say not a lot is obviously foreign demand seems to be waning from the traditional sources. Banks are buying more treasuries. There's definitely a whole push to get banks to buy even more through deregulation. uh but the big treasury owners believe it or not are through the basis trades. It's obviously showing up in terms of uh non-bank financial entities that are buying a lot of treasuries and in a way you know there's nothing necessarily wrong with that because uh you know there's there's liquidity risk but there's no sort of duration risk. Uh they might eventually be credit risk but you know why not have uh you know that expanding. If Lori Logan goes out and gets rid of the funds targets and targets repo, you actually take away uh a big um sort of liquidity concern for the hedge funds that are doing this trade. And in a way, it might be another avenue by which you get a lot of treasuries absorbed in non-traditional areas and you don't need to rely on the Chinese for example or the Japanese to buy our treasuries. >> Dominic Constant with us and we continue here. He's with Missouo an extended conversation for Global Wall Street. Isabelle Lee, I have real trouble with the Myerin certitude in others given the Newtonian plug and chug of the Taylor rule. We really don't know our start. I told Waller there's two our starts for this split torn under America. We don't know the output gap. How blind are we, Dominique, right now? >> Um, well, I think we're always fairly blind. Uh and but the best way to discover uh neutral rates is always is is is the way uh uh you know it's like driving the truck and you sort of know the you sort of vaguely know the direction, you know the speed and you think you're going to know where it's going to end up and if it doesn't you recalibrate. That's how our star is basically calculated. So um basically if you cut rates you know down to say 2% instead of leaving them around 3 or 3 and a half then you'll know whether the neutral rate is is substantially higher after the event. But uh you know it's a little bit hit and miss but you can you can always raise rates if you need to and that's kind of how I would see it. So the balance of risk kind of tells you you should do more. And then let's be honest there's another side to the interest rate story which isn't just about calibrating interest rates perfectly for the labor market or even inflation. There is a side of uh this rather nasty sort of debt service sort of spiral with the deficit. You you kind of you you are you know obligated to some extent to say look have shorter rates and let's maybe finance more. Go Matthew. Let's go Matthew. On debt service, how nonlinear is it? I mean, it's if it's an accelerant through a higher yield, do you have in your head where we lose the linearity of the calmness of debt service all of a sudden? Boom. >> Yeah, absolutely. It's it gets very nonlinear. Uh um you know, you take Japan. I mean, Japan has short rates in 30 years time that are like 6%. I mean, that's crazy. I mean, they they blow themselves up completely if that were to be realized. And that's in the forward markets. You take countries like France. I mean, they have big issues at the moment. Uh the US does not the US is not quite as bad as that, but it could be as bad as that if it's not careful. So, it must get on top of uh the debt service. Uh especially uh if it's finding it too hard to cut the deficit in other ways. >> What about when it comes to tariffs? Your read seems to be that tariffs are being absorbed quietly for now. We have profit margins weakening, but prices staying benign. What will happen though when consumers run out of purchasing power? >> So, well, first of all, I mean, consumers obviously have taken a bit of a hit on tariffs. I mean, clearly consumption is running you a few hundred billion below, let's say, trend. Uh, but not nearly enough to be pushed into recession. One thing to bear in mind is we've only really had half of the potential tariffs we might get. You know, the China truce is extremely important. Uh, and and if it continues, then that's that's the sort of good thing from that perspective. Uh so I think uh uh the the only other the main thing though is really that profit margins are so uh large in the US in the domestic you know US sort of economy. uh they they were large when COVID because of of egregious sort of you know pricing power if you like that uh uh companies were able to sort of extract uh really because of the fiscal stimulus and in a funny way what the tariffs are doing is by forcing these companies to to absorb them rather than pass them on to consumers. It's really that the federal government taking the money back that they indirectly gave to corporate America via the consumer and that egregious pricing. So there's a there's a there's a nice sort of holistic world that's going on. Uh and I and that's why we don't don't actually think we'll go into recession even uh even though obviously with the risk of the labor market we can perhaps avoid it. >> Dominic Costa Mazou we continue uh with him thrilled that he could join us today uh working with Steve Rashettto surviving Steve Rashettto's brilliant dissection of American GDP on a daily uh basis. We welcome all of you worldwide particularly global wall street in India in America and the Pacific Rim and the continent of course as well. I want to go back to the transfixidiveness of your work with IRA at credit Swiss years ago and you guys owned the chart of how Wall Street was so wrong modeling out higher rates. It's going to happen. These little fan we we had a time series folks with little feathers of how wrong we are right now. What does that chart look like right now? What is the bet on Wall Street that once again will be wrong? >> Well, the the the the current bet on Wall Street is that the Fed is cutting, but it's cutting, let's say, relatively slowly uh and doesn't really get to a terminal rate uh of 3% uh or so until the second half next year. So where we think the riskreward there is that the Fed does end up cutting more aggressively and you bring that forward. So you basically sort of have a sort of more aggressive if you like you know flattening out of the forward short rates but then where it kind of gets I would argue you know wrong again uh is when you get into 2027 where you have a unusual sort of almost a flat lining of the funds rates like once they come down they stay down. So, not only do they not, you know, not come down far enough, but the very fact that they're staying down for that prolonged period seems to me >> Okay. So, are you suggesting that we need to get away from 2.0% target and that we're going to have a new central bank regime in 2728 29, which is a new set higher. >> Yeah, I think the I think in the uh it it kind of depends on what the administration wants to do about inflation. I mean, whether they tolerate it or not. So uh I think in a conventional way if they tolerate say inflation up around 4% for a while and they do that because of say the debt service things then you will have a lot of you know >> are you model I got to make some news here. Are you Isabelle needs news. Are we modeling 4% inflation? >> My one of my very one of my models that I'm very proud of models 4% core CPI and rising uh in 2027. Yes. >> Wow. That's a headline for me there. >> Yeah. What about Okay, so then the market doesn't seem to be fully bought in when it comes to the Fed accelerating rate cuts. So, is that a communication issue from the Fed or is that inflation anxiety? Why do you think there's a disconnect there? >> To be honest, I think I think Pal would be much more committed to bringing rates down further if uh President Trump wasn't sort of so interfering in in in in Fed policy. I think it's almost a a kind of like a pride pride moment. he'll end up doing it, but he just can't sort of preemptively say he'll do it. That's my perspective. But >> and the shuts down the shutdowns market impact is usually limited, but you say that this time might be different. Why is that? >> Well, I mean shut shutdowns are limited if they're short. Uh but if they they're at long uh then it will it does impact consumption. >> What is long? >> Uh at least a month. And uh you know the shutdown is approaching that. And I think if it goes even longer than that, obviously you're going to see consumer spending take a hit. And and we model we we we model that relative to uh consumption trends before the shutdown and then afterwards. So clearly there is there is some impact. Yeah. Absolutely. >> Dominic Cost on AI. They say it's outside your remit. I don't buy it for a moment. I mean we got Thaylor coming in here in the uh coming up here in 30 minutes 20 minutes uh the laurate from Chicago on the behavior of the structure fine Dominic const AI and the overlay to productivity which we're not going to know for three four five 10 years >> yeah well I'm I'm a big big fan of these productivity sort of miracle stories you know through through the trends absolutely I think AI is a massive positive for productivity and it's going to go hand inhand with very little labor input which we're kind already seeing. So when I look at the G GDP, you know, I look at the expenditure side, let's say, and all that kind of translates into higher productivity, uh, you know, because of the underlying thing AI. Anecdotally, when I talk to our clients, uh, uh, basically, you know, in in in the in the real money hedge fund community, more and more are saying, you know, they're obviously using AI and they're not hiring graduates in the way that they did before. That's a really big impact in >> I mean, I look at Missou and what you're building over there. You pick up Jordan. This is like picking up, you know, some baseball player. You pick up Jordan Rochester in foreign exchange. You and Rashido have to battle over nominal GDP. Are you guys all on the same page given a 4% constant call? >> Uh, we we all always agree. It's amazing. Yeah. >> Oh, please. I mean, this it's really a hell of a team you put together there. >> Yeah. But I think the diversity of opinion is good. I mean, it challenges each of us to sort of go back and rethink and uh and refine our arguments. your future for your United Kingdom. I can't glean it reading the papers. >> Yeah, I mean it's all it's it's a little, you know, I think the future is uh um my my old schoolmate uh Nigel Farage becomes prime minister. I think it's a little bit like like the same as in uh in France with uh uh you know with with national uh you know the populism is is you know it can't be held back for too long and it's really a dysfunction of the established parties. I mean, you know, the Labor Party uh never really uh you know, it never had a massive popular vote in the first place, but unfortunately it's made a lot of missteps and it's hard to see how they're going to keep out that that the reform party. >> If Mr. Farage comes calls on his own class, his old classmate, will you look to serve as chancellor of the exjector? >> Uh, of course I would. >> Thank you, Dominic Constant with uso. Stay with us. More from Bloomberg Surveillance coming up after this. You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10:00 a.m. Eastern. >> Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. >> Yolena Schulava joins us right now and has frankly never been a more important conversation. She's with the Conference Board which goes back to 1916. Full disclosure, it was religion to my grandfather. They are different. They have a huge history of data collection and the mood and in a massive government shutdown. It's not that you're it, but you're the ones that have been tested time and time again in shutdowns. What What is your message about what's really going on is we're datalless. Well, I can guarantee you'll get another data point from the conference port next Tuesday when the CCI uh index will be released and we'll get another gauge of how consumers are feeling in this economy. And uh uh another data point uh I would like to talk about is the CEO confidence that we received last week and we that hasn't been much of an improvement on the CEO confidence front. Actually they're saying that uh you know things are probably okay but the CEO confidence is still below the 50 break uh break even level. >> Are you back testing on CEO confidence? Is it a legitimate time series? >> Absolutely. It uh tracks uh uh investment business investment and the thing that I um watch mostly is uh business investment plans. So that that's a gauge for uh telling you what happens to business investment going forward. >> Yes. And only 4% of CEOs are expecting a recession, but growth is still projected to decelerate. What's behind this cautious optimism? And what does it signal to the business cycle heading into next year? >> There's still a lot of uncertainty. There's still a lot of uncertainty about where tariffs would land. That's a lot of uncertainty about the AI impact and uh regulation and geopolitics as well. So those uh top concerns for uh you know the seauite uh uh people and I think that's that's an important uh thing to remember when you talk about outlook for next year. So the shutdown is having ripple effects not just in GDP but in confidence also. Where are you seeing the most visible signs of disruption when it comes to uh the data whether it's employment or the CPI print that's >> for us economists uh the data flow is disrupted that's it already is happening and we have much uh lower visibility in terms of how to think about the economy but in terms of the overall impact on the economy it's still moderate but it will be nonlinear so it doesn't go like oh uh one to to uh ten of a percent each week. It's nonlinear. So first week it's minimal. Second week, third week when people start missing the paychecks, that's that could uh be much more uh significant. And I think if it moves into November, we will talk a little bit more about the economic impact. >> So speaking of inflation, we may we may be heading into a hotter print this Friday. Do you think that the Fed can afford to stick to its gradual plan of easing if inflation holds above 3%. >> Absolutely. That's what Chair Powell said uh at the NAPE uh meeting last week. It was an amazing speech by uh the Fed chair and he just basically confirmed >> you know it's it's about the risks. It's about the risks to the labor market, not particular data. >> So is that their implicit target now at 3%. >> Well, that's that's a tough question. I think they still believe they can get lower but uh you know uh they're not really speaking about it explicitly. >> Yolina, thanks so much. Yolena Shilate with us with the conference board with their important data coming out. Stay with us. More from Bloomberg Surveillance coming up after this. >> This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg 11:30. >> Joining us off what I, you know, we didn't do enough on this last week, the International Monetary Fund with their uh meetings and uh all the different work. I look at the green book, the global financial stability report. It's 126 dense pages of really PhD level thinking about where are we Rahee's gone beyond that and he he joins us now on our instabilities maybe within the commit what do you think of our global financial stability right now >> hey Tom uh thank you so much for having me it's a pleasure and no I mean look I've done the global financial stability report for almost a decade now and you sort of get tuned to looking at the left tail of the distribution and what can go wrong throughout but where we are right now I think things are going pretty decently well uh I mean the big question is that and the perfect example are these IMF meetings that ended last week when you went to them 6 months ago it was all about despondence that you know there's a tariff shock and everything is going to get ripped at the seams now it's all about resilience that global economy has outperformed expectations global markets have outperformed expectations and not just us pretty broad-based. So from that perspective, things seem to be going pretty well at the margin. In terms of instability, I would still argue that the biggest risk uh in the market remains on the US bond market side >> and how inflation people are sort of passing it by. Uh but I think in my view that's a mis risk that >> the IMF does wonderful stress tests. They'll look at you know stress episodes is what they call them where they pretend bad things happen. Are we prepared Rohit right now within global wall street for the next marginal stress? >> I think to a great extent I would argue yes. The issue is that the unknown unknown is something which nobody gets prepared for. Right. But the other stress test which we saw in terms of the banking crisis in terms of the regional banks getting an issue or any stress in the treasury bond market. I think from that perspective the Fed and the policy makers are pretty prepared. the issue is more of a self goal that cutting rates at a time when the inflation is sort of picking up cyclally can take people uh by a surprise and that I think can be a source of a issue. >> So you spoke with over 20 finance ministers which is a real pulse check and one of your big takeaways was that trade is moving beyond the US and fast. What are the countries doing to reapply supply chains and why do you think investors need to take that shift seriously? No, I think uh look and this has been a fascinating stat. If you look at since 2016, which was Trump's first term, 90% of countries have seen an increase in trade to GDP. US is one of the only major countries which have seen a decline in trade to GDP and four of the fastest growing trade corridors are outside of US. So while we do make a big deal out of the US tariff situation, the reality being that other countries have been preparing for this uh event for a while now and especially when you talk to all these policy makers as you mentioned I met almost 20 finance ministers last week and the big picture feedback was that look US is extremely important for us and it's impossible to sidetrack it but at the same time US is just 15% of global imports. There is a big world outside of US that we need to partner with and now especially now we are in a transactional world we need to be a bit more mindful of. So when you go from >> Europe emerging markets everyone is signing more free trade deals everyone is trying to diversify their export base in terms of partners as well as products. I think that's a welcome development. >> Uh Rohit Goal with us thrilled to have him with us with breakout partners on our Bloomberg podcast. What a successful experiment it's been. Thank you for listening on YouTube. Subscribe to Bloomberg podcast out at YouTube and we say good morning and Rohit's India where we've had just huge huge success. Rohit I want to do an audible here. State to me the new Modi capitalism of India. Explain to me 2026 for the animal spirit of India. No, I think it's going to be the same old that look uh we have fixed a lot of the historical issues. Now we have a big bad wolf in term of President Trump and Modi is the one who is trying to safeguard the interest of Indian farmers and Indian sort of domestic houses and we got to stay the course if we want to make India great again. >> Let's stick with the region. What about China? You mentioned that China was surprisingly absent from discussions. Given its central role in global trade, what do you make of the silence? No, I think that was for me the biggest shock that one would imagine that the US China issues and China in particular would be a very big focus but honestly not really and I think there are a couple of reasons one being most of the investors have priced in that the US China skirmishes will continue for the time being there will be escalation most of it is posturing will revert back some of it so from that perspective it's going to be a slow and steady negotiation between US and China and we have we are in that segment of the Nash equilibrium that we don't want to be in the lose-do situation. I think both US and China realized that >> a big bigger focus for me was how the emerging markets are talking about the China manufacturing glut and how the over supply is sort of killing their own domestic manufacturing industries and there is a big focus to make sure that that doesn't really uh take roots >> right Rohit thank you so much Roel with us uh please please would love to see you in uh studio at some uh pointyel is with breakout capital partners stay with us. More from Bloomberg Surveillance coming up after this. This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say, "Alexa, play Bloomberg 11:30." >> Andrew Siciliano joins us. partner trading customs practice at KPMG. This could be a three-hour interview this morning. You are a licensed US customs broker. All of a sudden, everything seems arbitrary. When Isabelle Lee gets something from Dior or Hermes in Paris, she has no idea if there's going to be a customer tariff on it. Have you ever seen it this nuts? >> No. It's It's been extremely volatile, uncertain, um really complicated, too. The rules are consistently changing, Tom. So if you think about it today, there are country specific tariffs, industry specific tariffs, there's trade deals taking place, and there's a bunch of investigations that are still underway that we don't even know what the impact is going to be. >> Okay. But so it the JFK, >> okay, >> they come in a cargo plane. >> Are there people like you, licensed customs brokers, figuring out what's in each bundle? >> Well, what what a broker does, a broker will help clear the shipments, right? So they will file the customs entry with US customs. On that entry is where you declare all these tariffs. So that is the um the point of contact with customs to um disclose all the tariffs to customs. >> So the US has racked up some $80 billion in tariff revenue this year. That's more than double the last year and it looks good on the revenue side. But how are businesses and consumers actually absorbing this the cost on the ground and based on your perch are they um worried or h what's happening? >> You know it's it's a great question. It really varies. There there's there's no single answer. There are situations where prices are going up people see it right there are there are those scenarios but there's also um market conditions that are driving prices not to go up. And there's also um supplier and importer absorption where there's negotiations happening where they're absorbing the tariffs and also companies are looking for ways to mitigate and move their supply chains to avoid the tariffs. >> Right. Tell me about the dimminimous rule. I mean it's it's driving everybody everybody%. Yeah. So the dimminimous rule many many years ago was like $200 and the whole point of it was when you have these small parcel shipments, why do we want customs entries for every single small shipment? And then when the amount raised to $800, you had companies taking advantage of it. Yeah. You know, putting warehouses in Mexico and and in Canada and shipping into the US. So, a lot of US companies were at a disadvantage and lobbied against it. So, um right now it's causing a lot of turmoil cuz companies that were relying on that e-commerce benefit. >> So, just lower from 800 to pick a number. >> It's Yeah, there's it's zero now. Customs entries required for those shipments. I mean there's different types of entries but the dimminimous rule no longer exists. >> So we're clearly at an inflection point in global trade. You call this a turning point and noted that companies who treat the disruption disruption as strategy could come out ahead. What does that look like in practice though? Because okay maybe what if I'm a small business and I got myself used to the $800 >> Yeah. >> minimum. Right. So then >> so when the tariffs when the new tariffs were initially announced it it was um everyone was in mitigation mode reacting to the tariffs. There was also uncertainty. We didn't know if they were going to last. So they were just looking for the lowhanging fruit opportunities. But now we're beyond mitigation. Companies are rewiring their supply chains. They're looking at attacks and trade planning opportunities. They are looking at technology and data and AI to do scenario planning modeling. We have a tool at KPMG that does that for our clients. >> They're also looking at operating models. The customs function for years was operational. It was a border tax, clear the goods. Now they're looking at the overall structure. >> And Siciliano with us. We're going to get one more in here. We're I'm I'm very remiss on this. I got a nasty letter from the government of Mexico. Thank you for listening every morning in Mexico City. Really honored. And we don't do enough on agriculture. How are we doing on tariffs of tomatoes of avocados of bananas that I think we can't grow in America? Am I right on that Isabelle? >> That I don't know. I have to ask Chad GP. >> Okay. How are we doing on agriculture tariffs? Is it like coming? Well, there was there are tariffs for Mexico and Canada punitive tariffs under the which as you know the Supreme Court case is going to rule on soon. Um but there are also exceptions. If a good qualifies under the USMCA, they avoid that tariff. So, right now, if you meet USMCA, you could avoid the tariff. >> What's a single summation of your KPMG study on this headache of tariffs? >> It's volatile. Um, there's lots of disruption and companies need to be agile and flexible and manage through it. You can't avoid the pain. You have to manage it. >> I got I got eight more questions. Come back. Thank you so much. 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