Bloomberg Surveillance Navigating the Fed's Dual Mandate
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Oct 21, 2025 
Dominic Konstam, Managing Director and Head of Macro Strategy at Mizuho Securities USA, shares valuable insights into Fed policy. He discusses the potential for aggressive cuts in interest rates, the intricate balance of inflation management, and the impact of tariffs on corporate margins. Konstam also highlights the risks of nonlinear debt crises and the role of AI in shifting labor demand. His analysis suggests that markets may be mispricing future Fed actions and inflation trends, making it a must-listen for those interested in economic forecasting.
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Economy Rebalancing Changes Rate Structure
- Dominic Konstam argues the economy is rebalancing from consumption toward investment and net exports, altering real rates and the dollar.
- He expects a low real funds rate with relatively higher long-term real rates, implying a steeper real yield curve.
Cut Now But Be Ready To Raise
- Konstam's mantra is "cut and raise": cut rates aggressively now but be prepared to raise later if inflation resurges.
- He recommends cutting to learn about neutral rates and then recalibrating upward if needed.
Tariffs Are Eroding Corporate Pricing Power
- Domestic corporate unit profit data show almost no pricing power, so firms absorb cost shocks rather than pass them to consumers.
- That absorption pressures labor costs and raises the risk of layoffs as firms seek to cut unit costs.