WEBVTT - Navigating the Fed's Dual Mandate 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.000 us live on YouTube. 0:00:27.240 --> 0:00:33.040 Dominating constem with a holistic view on the economy, Your 0:00:33.159 --> 0:00:38.440 note is breathtaking pushing against the gloom is a regime 0:00:38.520 --> 0:00:44.400 of lower rates from within the ambiguity of all those dynamics. 0:00:44.920 --> 0:00:48.239 Is it a positive trend of lower rates or a 0:00:48.360 --> 0:00:49.960 grim tend of lower rates? 0:00:52.800 --> 0:00:57.080 Well, I think the idea is the economy is under 0:00:57.120 --> 0:01:01.200 a transformation thanks to the policy of the new administration. 0:01:02.120 --> 0:01:07.960 That transformation involves basically rebalancing away from the consumer, if 0:01:08.000 --> 0:01:10.760 you like, towards investments and nests, exports. 0:01:10.760 --> 0:01:12.839 And what goes with that. 0:01:13.040 --> 0:01:16.920 Actually, first of all is a weaker real exchange rate, 0:01:17.160 --> 0:01:20.000 a weaker real effective exchange rate for the dollar. And 0:01:20.040 --> 0:01:23.759 then as regards interest rates, it's sort of like not 0:01:23.800 --> 0:01:28.120 necessarily lower or higher, however, it is steeper in terms 0:01:28.160 --> 0:01:30.720 of real terms to real rates. So the idea is 0:01:30.720 --> 0:01:32.400 that in the end we're going to have a very 0:01:32.480 --> 0:01:37.440 low real funds rate and a relatively elevated if you 0:01:37.560 --> 0:01:40.600 like long term real rate. And so when you ask 0:01:40.680 --> 0:01:44.800 the question, our rates lower, there's a pivot point and 0:01:44.840 --> 0:01:48.160 the answer is yes at one end, but not necessarily 0:01:48.160 --> 0:01:48.560 at the other. 0:01:49.200 --> 0:01:51.320 I hate you you send in a thirty six page 0:01:51.400 --> 0:01:52.080 power point. 0:01:53.000 --> 0:01:56.160 Nothing's changed since you and Irah Jersey at credits we 0:01:56.240 --> 0:01:59.600 few years ago. What is a distinctive slide in your 0:01:59.600 --> 0:02:01.240 thirties six page PowerPoint? 0:02:01.520 --> 0:02:04.360 What's the one our listeners and viewers need to hear about. 0:02:04.520 --> 0:02:09.600 Well right now in terms of the evolution of the 0:02:09.680 --> 0:02:13.200 economic outlook, the main point is that inflation is relatively 0:02:13.200 --> 0:02:16.079 benign now and if anything, it could actually go down 0:02:16.120 --> 0:02:19.480 a little bit more in the next quarter or two. However, 0:02:20.040 --> 0:02:22.079 there's a lot of risk that inflation actually goes back 0:02:22.160 --> 0:02:24.600 up again at the end of next year. So the 0:02:24.680 --> 0:02:28.240 idea is that the FED has a window to cut rates. 0:02:28.400 --> 0:02:30.799 So our sort of mantra is cut and rais the 0:02:30.880 --> 0:02:33.959 FED should be cutting rates suggressively. I don't disagree with 0:02:34.360 --> 0:02:37.760 Stephen Myron. However, they need to be prepared to raise 0:02:37.840 --> 0:02:39.680 rates at the end of next year, if not in 0:02:39.760 --> 0:02:42.399 twenty twenty seven, which sounds a little odd, but that's 0:02:42.480 --> 0:02:44.560 kind of the nature rates. Get them down and you 0:02:44.600 --> 0:02:45.760 may have to take them back up again. 0:02:45.800 --> 0:02:49.960 You mentioned mister Myron in my conversation with Waller of 0:02:50.040 --> 0:02:53.919 Bemidji in Washington State. Does Dominic Constant have a favor 0:02:54.040 --> 0:02:54.960 to be FED Chairman? 0:02:57.080 --> 0:03:01.600 Well, I sort of feel risk reward in terms of 0:03:01.639 --> 0:03:05.560 giving some sort of confidence at the long end, sort 0:03:05.600 --> 0:03:09.120 of favors someone like Kevin Walsh. I would think, I know, 0:03:09.200 --> 0:03:11.040 I mean, I think a Hasset would be would be 0:03:11.080 --> 0:03:13.800 fine too. I just think some of the ideas that 0:03:13.880 --> 0:03:17.000 you know, the FED needs to have a radically different, 0:03:17.120 --> 0:03:18.800 you know, different approach. 0:03:19.600 --> 0:03:21.840 I'm not not sure you know that that's going to. 0:03:21.880 --> 0:03:25.200 Serve the administration very well right in terms of long 0:03:25.280 --> 0:03:26.239 term interest rates having. 0:03:26.080 --> 0:03:28.360 Get one more in Isabelle's ready to go? The answer 0:03:28.520 --> 0:03:31.360 is and Waller was big on British descent. You've lived 0:03:31.360 --> 0:03:34.320 the descent of the United Kingdom. There were fistfights at 0:03:34.360 --> 0:03:38.280 Cambridge when custom was was there. Should we have a 0:03:38.320 --> 0:03:41.840 more fractious FED dialogue like the Bank of England. 0:03:44.000 --> 0:03:48.680 I mean, doesn't doesn't hurt having friction among the different members? 0:03:48.720 --> 0:03:52.400 Absolutely not. I mean, but you know, at the end 0:03:52.400 --> 0:03:55.080 of the day, that they need to. I think absolutely 0:03:55.080 --> 0:03:58.280 they need to retain inflation credibility, and to do that 0:03:58.400 --> 0:04:01.280 you probably want a more U fide approach around that. 0:04:01.480 --> 0:04:04.360 Daminic Houston with US of Mizio this morning, here's Isabelle. 0:04:04.680 --> 0:04:08.800 Isabelle, let's talk about your big, big thesis, three percent 0:04:09.360 --> 0:04:12.320 FED funds rate before Powells term ends, and that's a 0:04:12.320 --> 0:04:15.840 bold call a special win. Market pricing are still hesitant 0:04:15.880 --> 0:04:18.840 when it comes to aggressive easing. What's the key catalyst 0:04:18.920 --> 0:04:20.240 for the FED to speed things up? 0:04:20.279 --> 0:04:20.440 Then? 0:04:21.200 --> 0:04:24.360 Well, I mean, clearly the balance of risks has shifted 0:04:24.360 --> 0:04:26.279 in terms of the labor market. And I think the 0:04:26.320 --> 0:04:28.920 thing that I look at that i'm sort of I 0:04:28.960 --> 0:04:31.720 find very compelling is if you look at the unit 0:04:32.960 --> 0:04:35.520 profit data for corporate America, and this is kind of 0:04:35.560 --> 0:04:38.360 domestic corporate America. We're not talking about SMP, of which 0:04:38.360 --> 0:04:40.800 half of it is sort of international. We're talking about domestics. 0:04:41.000 --> 0:04:43.880 There is absolutely no pricing power for domestics and you 0:04:43.920 --> 0:04:45.599 see that in the data, very very little. 0:04:46.040 --> 0:04:47.200 And that means that. 0:04:47.400 --> 0:04:50.440 All of the cost pressures that come from say tariffs, 0:04:50.839 --> 0:04:54.080 that they're being absorbed effectively, and that leads to other 0:04:54.279 --> 0:04:57.240 forms of cost reduction, which is really in the labor market. 0:04:57.360 --> 0:04:59.640 So it's all very well to say that, yes, you know, 0:04:59.720 --> 0:05:02.320 job creation is lower because you know of the immigration 0:05:02.480 --> 0:05:04.880 thing of reversing, et cetera. But at the end of 0:05:04.920 --> 0:05:08.400 the day, companies are being obliged to cut unit costs 0:05:08.440 --> 0:05:10.599 where they can, and that is on the labor side. 0:05:10.640 --> 0:05:13.720 And the risk clearly is that what is currently a 0:05:13.760 --> 0:05:16.920 weaker aggregate ours worked. Clearly, the riskers are going to 0:05:16.960 --> 0:05:18.919 be laid off at some point, and we have. 0:05:18.960 --> 0:05:22.480 Lauri Logan floating removing the FED funds target entirely. And 0:05:22.600 --> 0:05:25.200 you seem to agree, what's the argument. 0:05:24.920 --> 0:05:29.719 There, Well, that's a brilliant question topic and it's very interesting, and. 0:05:29.760 --> 0:05:34.840 I'm saying my questions, yeah, continue with well after something 0:05:34.880 --> 0:05:37.359 out there, just you know, basically, not a lot of 0:05:37.400 --> 0:05:39.360 people are buying treasuries, Let's be honest. 0:05:39.400 --> 0:05:41.640 And there's a lot of treasures supply out there. And 0:05:41.720 --> 0:05:44.040 when I say not a lot, it's obviously foreign demand 0:05:44.160 --> 0:05:47.400 seems to be waning from the traditional sources. Banks are 0:05:47.400 --> 0:05:50.040 buying more treasuries. There's definitely a whole push to get 0:05:50.080 --> 0:05:53.400 banks to buy even more through deregulation, but the big 0:05:53.400 --> 0:05:55.000 treasury owners believe not are. 0:05:54.960 --> 0:05:56.000 Through the basis trades. 0:05:56.000 --> 0:05:59.159 It's obviously showing up in terms of a non bank 0:05:59.240 --> 0:06:01.880 financial entity that are buying a lot of treasures. And 0:06:01.920 --> 0:06:04.200 in a way, you know there's nothing less say wrong 0:06:04.279 --> 0:06:07.560 with her because you know there's a liquidity risk, but 0:06:07.600 --> 0:06:10.600 there's no sort of duration risk. They might eventually be 0:06:10.720 --> 0:06:13.440 credit risk, but you know, why not have you know 0:06:13.480 --> 0:06:16.280 that expanding If Laurie Logan goes out and gets sort 0:06:16.279 --> 0:06:19.520 of the funds targets and targets repo, you actually take 0:06:19.560 --> 0:06:24.039 away a big sort of liquidity concern for the HESH 0:06:24.080 --> 0:06:26.360 funds that are doing this trade. And in a way 0:06:26.400 --> 0:06:28.760 it might be another avenue by which you get a 0:06:28.800 --> 0:06:32.680 lot of treasuries absorbed in non traditional areas and you 0:06:32.720 --> 0:06:34.640 don't need to rely on the Chinese, for example, all 0:06:34.640 --> 0:06:36.080 the Japanese to buy our treasuries. 0:06:36.360 --> 0:06:38.520 Dominic Caustim with us, and we continue here he's with 0:06:38.520 --> 0:06:40.760 the Miszoo and extended conversation. 0:06:40.320 --> 0:06:41.839 For Global Wall Street Isabelle Lee. 0:06:42.600 --> 0:06:46.160 I have real trouble with the Meyron certitude and others. 0:06:46.400 --> 0:06:50.240 Given the Newtonian plug and chug of the tailor rule. 0:06:50.640 --> 0:06:53.760 We really don't know our start. I told Wili. There's 0:06:53.800 --> 0:06:58.160 two our starts for this split torn as under America. 0:06:58.680 --> 0:07:01.800 We don't know the output gap. How blind are we 0:07:01.920 --> 0:07:02.920 Dominique right now? 0:07:04.120 --> 0:07:06.159 Well, I think we're always fairly blind. 0:07:06.920 --> 0:07:10.920 But the best way to discover neutral rates is always 0:07:11.440 --> 0:07:11.920 is the way. 0:07:12.880 --> 0:07:13.120 You know. 0:07:13.200 --> 0:07:15.200 It's like driving the truck and you sort of know 0:07:15.280 --> 0:07:17.480 the you sort of vaguely know the direction, you know 0:07:17.520 --> 0:07:19.200 the speed, and you think you're going to know where 0:07:19.320 --> 0:07:21.440 it's going to end up, and if it doesn't, you recalibrate. 0:07:21.480 --> 0:07:24.840 That's how our star is basically calculated. So basically, if 0:07:24.880 --> 0:07:27.640 you cut rates, you know, down to say two percent, 0:07:27.720 --> 0:07:29.720 instead of leaving him around three or three and a half, 0:07:29.800 --> 0:07:33.560 then you'll know whether neutral rate is substantially higher after 0:07:33.560 --> 0:07:35.560 the event. But you know it's a little bit hid 0:07:35.560 --> 0:07:37.400 and missed, but you can you'n always raise rates if 0:07:37.400 --> 0:07:38.960 you need to, And that's kind of how I would 0:07:38.960 --> 0:07:41.000 see it. So the balance of risk kind of tells 0:07:41.000 --> 0:07:43.240 you you should do more. And then, let's be honest, 0:07:43.240 --> 0:07:45.560 there's another side to the interest rates story, which isn't 0:07:45.600 --> 0:07:49.120 just about calibrating interest rates perfectly for the labor market 0:07:49.320 --> 0:07:52.600 or even inflation. There is a side of this rather 0:07:52.760 --> 0:07:56.040 nasty sort of debt service sort of spiral with the deficit. 0:07:56.120 --> 0:08:00.440 You kind of you are obligated to some extent, say, look, 0:08:00.760 --> 0:08:03.120 have shorter rates and let's maybe finance more. 0:08:03.160 --> 0:08:06.440 Can I go mathy? Let's go mathy and debt service? 0:08:06.680 --> 0:08:10.400 How nonlinear is it? I mean, if it's an accelerate 0:08:10.560 --> 0:08:13.000 through a higher yield. Do you have in your head 0:08:13.440 --> 0:08:16.440 where we lose the linearity of the calmness of debt 0:08:16.480 --> 0:08:18.720 service all of a sudden boom? 0:08:18.920 --> 0:08:23.560 Yeah, absolutely, it gets very nonlinear. You in take Japan, 0:08:23.600 --> 0:08:26.120 I mean, Japan has short rates in thirty years time 0:08:26.440 --> 0:08:27.600 that are like six percent. 0:08:27.680 --> 0:08:28.640 I mean that's crazy. 0:08:28.680 --> 0:08:30.880 I mean they blow themselves up completely if that were 0:08:30.920 --> 0:08:33.280 to be realized. And that's in the forward markets. You 0:08:33.360 --> 0:08:35.360 take countries like France, I mean, they have big issues 0:08:35.400 --> 0:08:35.960 at the moment. 0:08:36.280 --> 0:08:37.040 The US does not. 0:08:37.400 --> 0:08:39.320 The US is not quite as bad as that, but 0:08:39.360 --> 0:08:41.560 it could be as bad as that if it's not careful. 0:08:41.600 --> 0:08:44.440 So it must get on top of the debt service, 0:08:45.120 --> 0:08:47.960 especially if it's finding it too hard to cut the 0:08:47.960 --> 0:08:49.280 deficit in other ways. 0:08:49.720 --> 0:08:51.079 What about when it comes to tariffs. 0:08:51.120 --> 0:08:53.480 Your read seems to be the tariffs are being absorbed 0:08:53.559 --> 0:08:56.920 quietly for now, we have profit margins weakening, but prices 0:08:56.920 --> 0:09:00.800 staying benign. What will happen though, when consumers run out 0:09:00.800 --> 0:09:02.920 of purchasing power? 0:09:03.120 --> 0:09:05.640 So well, first of all, I mean consumers obviously have 0:09:05.679 --> 0:09:07.480 taken a bit of a hit on tariffs. I mean 0:09:07.520 --> 0:09:10.320 clearly consumptions running in a few hundred billion below let's 0:09:10.320 --> 0:09:13.920 say trend, but not nearly enough to be pushed into recession. 0:09:14.240 --> 0:09:16.000 One thing to bear in mind is we've only really 0:09:16.040 --> 0:09:18.720 had half of their potential tariffs we might get. You know, 0:09:18.720 --> 0:09:22.280 the China truce is extremely important, and if it continues, 0:09:22.320 --> 0:09:24.280 and then that's that's the sort of good thing from 0:09:24.280 --> 0:09:28.400 that perspective. So I think the only other the main 0:09:28.440 --> 0:09:32.679 thing though, is really that profit margins are so large 0:09:32.800 --> 0:09:35.160 in the US and the domestic you know, US sort 0:09:35.160 --> 0:09:40.120 of economy. They were large when COVID because of egregious 0:09:40.280 --> 0:09:42.440 sort of you know, pricing power if you like, that, 0:09:42.880 --> 0:09:46.080 companies were able to sort of extract really because of 0:09:46.080 --> 0:09:48.800 the fiscal stimulus. And in a funny way, what the 0:09:48.840 --> 0:09:52.400 tariffs are doing is by forcing these companies to absorb 0:09:52.520 --> 0:09:54.280 them rather than pass them on to consumers. 0:09:54.440 --> 0:09:56.480 It's really that the federal government. 0:09:56.160 --> 0:09:59.360 Taking the money back that they indirectly gave to a 0:09:59.400 --> 0:10:02.319 corporate America via the consumer and that egregious pricing. So 0:10:02.440 --> 0:10:05.320 there's a there's a there's a nice little holistic world 0:10:05.559 --> 0:10:08.200 that's going on and I and that's why we don't 0:10:08.280 --> 0:10:11.760 don't actually think we'll go into recession, even even though 0:10:12.080 --> 0:10:14.120 obviously with the risk of the label market we can 0:10:14.120 --> 0:10:14.960 perhaps avoid it. 0:10:15.120 --> 0:10:16.280 Dominic Coust to Missoua. 0:10:16.400 --> 0:10:19.000 We continue with them, thrilled that he could join us 0:10:19.000 --> 0:10:23.480 today working with Stever Shuttles, surviving Stever Shuttle's brilliant dissection 0:10:23.559 --> 0:10:27.640 of American GDP on a daily basis. We welcome all 0:10:27.679 --> 0:10:31.440 of you worldwide, particularly Global Wall Street in India, in 0:10:31.520 --> 0:10:33.839 America and the Pacific RIM in the continent of. 0:10:33.760 --> 0:10:37.439 Course as well. I want to go back to the. 0:10:37.400 --> 0:10:42.360 Transfixedness of your work with ira at Credits sweee years ago, 0:10:42.840 --> 0:10:46.080 and you guys owned the chart of how Wall Street 0:10:46.160 --> 0:10:49.880 was so wrong modeling out higher rates. It's going to happen, 0:10:50.280 --> 0:10:53.480 these little fan We had a time series, folks with 0:10:53.559 --> 0:10:56.679 little feathers of how wrong we are right now? What 0:10:56.720 --> 0:10:59.360 does that chart look like right now? What is the 0:10:59.400 --> 0:11:03.080 best on Wall Street that once again will be wrong? 0:11:03.720 --> 0:11:06.840 Well, the current bett on mall Street is that the 0:11:06.880 --> 0:11:10.000 FED is cutting, but it's cutting let's say, relatively slowly, 0:11:10.440 --> 0:11:13.400 and doesn't really get to a terminal rate of three 0:11:13.440 --> 0:11:16.600 percent or so until the second half next year. So 0:11:17.040 --> 0:11:18.959 where we think the risk reward there is that the 0:11:19.000 --> 0:11:21.760 FED does end up cutting more aggressively and you bring 0:11:21.840 --> 0:11:24.560 that forward, so you basically sort of have a sort 0:11:24.559 --> 0:11:26.679 of more aggressive if you like, you know, flattening out 0:11:27.200 --> 0:11:30.120 of the forward short rates. But then where it kind 0:11:30.120 --> 0:11:33.079 of gets I would argue, you know, wrong again, is 0:11:33.080 --> 0:11:35.600 when you get into twenty twenty seven, where you have 0:11:35.640 --> 0:11:38.560 an unusual sort almost a flat lining of the funds rates, 0:11:38.600 --> 0:11:40.560 Like once they come down, they stay down. So not 0:11:40.600 --> 0:11:42.560 only do they not you know, not come down far enough, 0:11:42.679 --> 0:11:44.920 but the very fact that they're staying down for that 0:11:44.920 --> 0:11:46.880 prolonged period seems to me, sorry, incorrect. 0:11:46.960 --> 0:11:48.959 Are you suggesting that we need to get away from 0:11:48.960 --> 0:11:51.520 two point zero percent target and that we're going to 0:11:51.559 --> 0:11:54.520 have a new central bank regime in twenty seven, twenty eight, 0:11:54.640 --> 0:11:57.520 twenty nine, which is a new set higher. 0:11:57.679 --> 0:12:00.160 Yeah, I think the I think in the it it 0:12:00.200 --> 0:12:02.120 kind of depends on what the administration wants to do 0:12:02.120 --> 0:12:02.760 about inflation. 0:12:03.040 --> 0:12:04.600 I mean, whether they tolerated or not. 0:12:04.760 --> 0:12:08.040 So I think in a conventional way, if they tolerate 0:12:08.280 --> 0:12:10.920 same inflation up around four percent for a while, and 0:12:10.960 --> 0:12:13.040 they do that because of say the debt service things, 0:12:13.320 --> 0:12:16.760 then you will have a lot of christ are you model? 0:12:16.800 --> 0:12:19.640 I'm going to make some news here Isabelle needs news? 0:12:19.840 --> 0:12:22.240 Are we modeling four percent inflation? 0:12:23.120 --> 0:12:25.040 One of my very one of my models? 0:12:25.040 --> 0:12:27.720 And I'm very proud of models four percent core CPI 0:12:28.360 --> 0:12:30.240 and rising in twenty twenty seven? 0:12:30.360 --> 0:12:34.439 Yes, Wow, that's a headline for me there. What about? 0:12:34.720 --> 0:12:35.200 Okay? 0:12:35.480 --> 0:12:39.200 So then the market doesn't seem to be fully bought 0:12:39.240 --> 0:12:41.440 in when it comes to the FED accelerating rate cuts. 0:12:41.440 --> 0:12:44.240 So is that a communication issue from the Fed? Or 0:12:44.280 --> 0:12:46.240 is that inflation anxiety? Why do you think there's a 0:12:46.280 --> 0:12:46.880 disconnect there? 0:12:46.880 --> 0:12:49.439 To be honest, I think pal would be much more 0:12:49.440 --> 0:12:52.880 committed to bringing rates down further if President Trump wasn't 0:12:52.920 --> 0:12:57.000 sort of so interfering in FED policy. I think it's 0:12:57.040 --> 0:13:00.320 almost a kind of like a pride moment. I'll end 0:13:00.360 --> 0:13:02.640 up doing it, but he just can't sort of preemptively 0:13:02.679 --> 0:13:03.400 say he'll do it. 0:13:03.640 --> 0:13:04.880 That's my perspective. 0:13:05.800 --> 0:13:10.319 And the shutdown the shutdowns market impact is usually limited, 0:13:10.360 --> 0:13:13.319 but you say that this time might be different, right, Well, I. 0:13:13.240 --> 0:13:16.559 Mean shut shutdowns are limited if they're short, but if 0:13:16.559 --> 0:13:20.640 they they're at long, then it does impact consumption. What 0:13:20.760 --> 0:13:23.160 is long at least a month, and you know this 0:13:23.240 --> 0:13:25.640 shutdown is approaching that, and I think if it goes 0:13:25.760 --> 0:13:28.240 even longer than that, obviously you're going to see a 0:13:28.240 --> 0:13:31.480 consumer spending taker hits. And we model, we model that 0:13:31.760 --> 0:13:35.520 relative to consumption trends before shutdown and then afterwards. So 0:13:35.640 --> 0:13:37.720 clearly there is there is some impacts. 0:13:37.800 --> 0:13:40.760 Yeah, do many costumer and AI they say it's outside 0:13:40.800 --> 0:13:43.360 you remit, I don't buy it for a moment. I mean, 0:13:43.400 --> 0:13:46.079 we got sailor coming in here and coming up here 0:13:46.080 --> 0:13:49.480 in thirty minutes, twenty minutes, the laureate from Chicago and 0:13:49.559 --> 0:13:53.720 the behavior of the structure fine dominic constant and AI 0:13:54.000 --> 0:13:57.079 and the overlaid of productivity which we're not going to 0:13:57.160 --> 0:13:59.079 know for three, four or five ten years. 0:13:59.360 --> 0:14:01.760 Yeah, well, I'm I'm a big big fan of the 0:14:01.840 --> 0:14:05.959 productivity sort of miracle stories, you know, through through the trends. Absolutely, 0:14:06.000 --> 0:14:08.840 I think AI is a massive positive for productivity and 0:14:08.880 --> 0:14:10.880 it's going to go hand in hand with very little 0:14:10.960 --> 0:14:13.839 labor input, which we're kind of already seeing. So when 0:14:13.840 --> 0:14:16.120 I look at the GDP, you know, I look at 0:14:16.120 --> 0:14:18.000 the expensiture side, let's say, and all that kind of 0:14:18.000 --> 0:14:21.440 translates into higher productivity, you know, because of the underlying 0:14:21.480 --> 0:14:24.400 thing AI. And it totally when I talk to our 0:14:24.480 --> 0:14:27.920 clients basically you know, in the in the in the 0:14:27.960 --> 0:14:31.240 real money hedge funk community, more and more saying you know, 0:14:31.240 --> 0:14:34.800 they're obviously using AI and they're not hiring graduates in 0:14:34.800 --> 0:14:35.880 the way that they did before. 0:14:36.000 --> 0:14:37.880 That's a really big impact to I mean, I. 0:14:37.840 --> 0:14:40.120 Look at bazoo on what you're building over there. You 0:14:40.160 --> 0:14:42.200 pick up Jordan. This is like picking up you know, 0:14:42.280 --> 0:14:45.440 some baseball player. You pick up George Rochester and foreign 0:14:45.440 --> 0:14:50.400 exchange human rashudo have to battle over nominal GDP. Are 0:14:50.440 --> 0:14:52.720 you guys all on the same page. Given a four 0:14:52.800 --> 0:14:54.560 percent constant cav. 0:14:55.000 --> 0:14:56.760 We all always agree, it's amazing. 0:14:59.240 --> 0:15:01.560 It's really a all of a TV yeah together there. 0:15:01.840 --> 0:15:03.960 But I think the diversity of opinion is good. I 0:15:03.960 --> 0:15:06.440 mean it challenges each of us to sort of go 0:15:06.520 --> 0:15:09.200 back and rethink and refine our arguments. 0:15:09.280 --> 0:15:12.720 What's your future for your United Kingdom? I can't glean 0:15:12.760 --> 0:15:13.760 it reading the papers. 0:15:13.960 --> 0:15:17.160 Yeah, I mean it's all it's a little you know, 0:15:17.200 --> 0:15:21.760 I think the future is my old schoolmate Nigel Farage 0:15:22.080 --> 0:15:24.480 becomes Prime Minister. I think it's a little bit like 0:15:24.880 --> 0:15:28.960 the same as in France with you know, with the 0:15:29.000 --> 0:15:32.120 from that's now you know that the populism is is 0:15:32.200 --> 0:15:34.280 you know, it can't be held back for too long 0:15:34.400 --> 0:15:37.920 and it's really a dysfunction of the established parties. I mean, 0:15:38.240 --> 0:15:41.560 you know, the Labor Party never really you know, it 0:15:41.640 --> 0:15:43.680 never had a massive popular vote in the first place, 0:15:43.760 --> 0:15:46.200 but unfortunately it's made a lot of missteps and it's 0:15:46.240 --> 0:15:48.200 hard to see how they're going to keep out that 0:15:48.200 --> 0:15:49.400 that the Reform Party. 0:15:49.400 --> 0:15:52.880 If mister Farage comes calls on his own class as 0:15:52.920 --> 0:15:56.120 old classmate, will you look to serve as Chancellor of 0:15:56.160 --> 0:15:56.800 the Exchequer? 0:15:58.360 --> 0:16:02.240 Of course I would constantly there's from a Zoo. Stay 0:16:02.280 --> 0:16:02.720 with us. 0:16:02.960 --> 0:16:06.200 More from Bloomberg Surveillance coming up after this. 0:16:13.440 --> 0:16:17.000 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:16:17.080 --> 0:16:20.200 weekday afternoons from seven to ten am Eastern Listen on 0:16:20.320 --> 0:16:23.960 Applecarplay and Android Otto with the Bloomberg Business app, or 0:16:24.120 --> 0:16:25.560 watch us live on YouTube. 0:16:25.840 --> 0:16:26.520 Elina Show. 0:16:26.720 --> 0:16:29.360 Tavid joins us right now and has frankly, never been 0:16:29.400 --> 0:16:34.080 a more important conversation. She's with the Conference Board, which 0:16:34.120 --> 0:16:37.760 goes back to nineteen sixteen. Full disclosure, it was religion 0:16:37.760 --> 0:16:41.880 to my grandfather. They are different. They have a huge 0:16:42.040 --> 0:16:45.120 history of data collection and the mood and in a 0:16:45.160 --> 0:16:49.360 massive government shutdown. It's not that you're it, but you're 0:16:49.360 --> 0:16:52.280 the ones that have been tested time and time again 0:16:52.320 --> 0:16:56.600 and shutdowns. What is your message about what's really going on? 0:16:57.160 --> 0:16:58.080 Is where data lists? 0:16:58.480 --> 0:17:01.760 Well, I can guarantee you get another data point from 0:17:01.800 --> 0:17:05.680 the conference port next Tuesday when the CCI Index will 0:17:05.680 --> 0:17:08.639 be released and will get another gauge of how consumers 0:17:08.680 --> 0:17:13.720 are feeling in this economy. And another data point I 0:17:13.760 --> 0:17:16.879 would like to talk about is the CEO confidence that 0:17:16.920 --> 0:17:20.399 we received last week, and that hasn't been much of 0:17:20.440 --> 0:17:25.080 an improvement on the CEO confidence front. Actually they're saying that, 0:17:25.680 --> 0:17:30.080 you know, things are probably okay, but the CEO confidence 0:17:30.160 --> 0:17:33.840 is still below the fifty break even level. 0:17:33.960 --> 0:17:37.800 Testing and CEO confidence. Is it a legitimate time series? 0:17:37.960 --> 0:17:38.720 Absolutely. 0:17:38.800 --> 0:17:44.480 It tracks investment, business investment, and the thing that I 0:17:44.520 --> 0:17:49.560 watch mostly is business investment plans. So that's a gauge 0:17:49.560 --> 0:17:53.200 for telling you what happens to business investment going forward. 0:17:53.520 --> 0:17:56.520 Yes, and only four percent of CEOs are expecting a recession, 0:17:56.560 --> 0:17:59.440 but growth is still projected to decelerate. What's behind this 0:17:59.520 --> 0:18:02.600 cautious optimism and what does it signal to the business 0:18:02.640 --> 0:18:04.040 I A Heading into next year. 0:18:04.080 --> 0:18:06.400 There's still a lot of uncertainty. There's still a lot 0:18:06.400 --> 0:18:09.800 of uncertainty about the tariff's woodland, that's a lot of 0:18:09.840 --> 0:18:15.600 uncertainty about the AI impact and regulation and geopolitics as well. 0:18:15.680 --> 0:18:19.159 So those are top concerns for you know, the c 0:18:19.280 --> 0:18:24.199 suite people, and I think that's an important thing to 0:18:24.280 --> 0:18:27.240 remember when you talk about outlook for next year. 0:18:27.880 --> 0:18:29.960 So the shutdown is having ripple effects not just in 0:18:30.000 --> 0:18:33.000 GDP but in conference also where are you seeing the 0:18:33.000 --> 0:18:37.080 most visible science of disruption when it comes to the data, 0:18:37.119 --> 0:18:40.240 whether it's employment or the CPI printed. 0:18:40.440 --> 0:18:44.600 For US economists, the data flow is disrupted. That's it 0:18:44.640 --> 0:18:48.919 already is happening, and we have much lower visibility in 0:18:49.000 --> 0:18:52.600 terms of how to think about the economy. But in 0:18:52.720 --> 0:18:56.280 terms of the overall impact on the economy, it's still moderate, 0:18:57.119 --> 0:18:59.760 but it will be nonlinear, so it doesn't go like 0:19:01.000 --> 0:19:04.480 one to two tens of a percent each week. It's 0:19:04.520 --> 0:19:09.320 non linear. So first week, it's minimal. Second week, third week, 0:19:09.400 --> 0:19:13.560 when people start missing the paychecks, that could be much 0:19:13.600 --> 0:19:17.480 more significant. And I think if it moves into November, 0:19:17.760 --> 0:19:20.920 we will talk a little bit more about the economic impact. 0:19:22.240 --> 0:19:24.680 So, speaking of inflation, we may we may be heading 0:19:24.680 --> 0:19:27.399 into a hotter print this Friday. Do you think that 0:19:27.440 --> 0:19:29.600 the Fed can afford to stick to the gradual plan 0:19:29.680 --> 0:19:32.600 of easing if inflation holds about three percent? 0:19:32.880 --> 0:19:37.320 Absolutely, That's what Chef Powell said at the NAPE meeting 0:19:37.440 --> 0:19:41.840 last week. It was an amazing speech by the FED 0:19:41.920 --> 0:19:45.320 chair and he just basically confirmed, you know, it's it's 0:19:45.359 --> 0:19:48.439 about the risks. It's about the risks to the labor market, 0:19:48.560 --> 0:19:49.720 not particular data. 0:19:49.840 --> 0:19:54.080 So is that the implicant target now three Well, that's 0:19:54.400 --> 0:19:55.399 that's a tough question. 0:19:55.560 --> 0:19:58.359 I think they still believe they can get lower, but 0:19:59.200 --> 0:20:02.920 you know, you're not really speaking about it explicitly. 0:20:03.400 --> 0:20:05.719 Yoanna, Thanks so much for Jolena Shila Tavia with us 0:20:05.720 --> 0:20:06.640 with the conference board. 0:20:06.640 --> 0:20:09.320 Are they're important data coming out? Stay with us. 0:20:09.560 --> 0:20:19.880 More from Bloomberg Surveillance coming up after this. 0:20:19.880 --> 0:20:23.760 This is the Bloomberg Surveillance podcast. Listen live each weekday 0:20:23.800 --> 0:20:27.199 starting at seven am Eastern on Applecarplay and Android Auto 0:20:27.240 --> 0:20:30.200 with the Bloomberg Business app. You can also listen live 0:20:30.280 --> 0:20:33.840