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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Let's discuss helping US elections and of course, attentions with

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Speaker 2: China ongoing may impact the Fed's rate path. Joining us

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Speaker 2: exclusively is Rob Kaplan, vice chairman of gold In Sachs.

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Speaker 2: He previously served as a Dallas FED President. Rob, Great

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Speaker 2: to see you here in Tokyo.

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Speaker 1: Good to see you.

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Speaker 2: Sure, How comfortable are you? Because I feel that this

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Speaker 2: is yeah, move a little bit, Okay, there you go.

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Speaker 2: I mean we are seeing this momentum for President Trump,

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Speaker 2: right should we be getting ready for what he is

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Speaker 2: dubbing trumponomics low interest rates as well as low taxes,

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Speaker 2: and what would that mean for the Fed's PAP.

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Speaker 3: So I think whatever happens, the FED is planning and

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Speaker 3: gearing up to cut rates in September. Won't move in July,

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Speaker 3: but they'll move in September. I'll try to stay away

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Speaker 3: from the politics of the two candidates other than to

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Speaker 3: say there's still three or foms left between now and

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Speaker 3: the election, And the only caution I would give is

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Speaker 3: that's an eternity, and at the moment it may seem

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Speaker 3: one way. I think this is going to have fits

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Speaker 3: and starts and the big topics though, of debate. US

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Speaker 3: is an aging society and we've got to find ways

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Speaker 3: to grow faster with lower costs. We're very highly leveraged,

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Speaker 3: and I think a lot of the debates are going

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Speaker 3: to be about globalization versus de globalization, energy transition, fiscal spending,

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Speaker 3: and I still think those debates need to happen and

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Speaker 3: get resolved.

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Speaker 2: What you just said right now, fiscal spending, it seems

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Speaker 2: that doesn't matter who wins at this point, you would

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Speaker 2: get more of it. I mean, you have President Biden

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Speaker 2: leaning towards erasing medical debt. I mean that will all

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Speaker 2: have to come out of somewhere. So what would that

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Speaker 2: mean if we get a more inflationary environment for the Fed?

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Speaker 2: Is that something to be concerned about just next year?

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Speaker 2: But this year the Fed stays put.

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Speaker 3: So I think if I'm at the Fed, I don't

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Speaker 3: want to prejudge these policies. The things I'll be watching though,

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Speaker 3: The Number one is what's going to happen with immigration.

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Speaker 3: One of the things that's helped the United States this

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Speaker 3: year has been workforce growth due to immigration, which is

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Speaker 3: allowed us to grow faster and still improve inflation. If

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Speaker 3: that if that gets revised or changed, or you depoored people.

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Speaker 1: They're going to have to bore.

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Speaker 3: In and understand that tariffs is a very significant topic.

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Speaker 3: But the fiscal spending, I think the juries out as

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Speaker 3: to how a new.

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Speaker 1: Administration will handle that.

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Speaker 3: We're running in the United States close to seven percent

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Speaker 3: of GDP deficits at full employment. Twenty nineteen, we're four percent,

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Speaker 3: and you're starting to see the stresses in the US

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Speaker 3: being able to sell the ten and thirty year treasury.

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Speaker 3: So I still think there's a lot of debate on

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Speaker 3: those issues.

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Speaker 1: Yet to come.

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Speaker 2: Goldman Sachs, is it making calculations right now a potential

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Speaker 2: tariffs being up even if it was President Trump, even

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Speaker 2: President Biden right now talking about those tech controls.

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Speaker 3: So we have economists that have written in doing scenarios

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Speaker 3: on a whole bunch of policies, but on terriffs is

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Speaker 3: a good example. All things being equal, tariffs would raise costs. However,

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Speaker 3: things are almost never equal. There are adjustments made. Maybe

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Speaker 3: people substitute other types of products for those where there

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Speaker 3: are tariffs. Example would be lithium batteries. If there are

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Speaker 3: tariffs on lithium batteries, maybe the next generation of batteries

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Speaker 3: maybe in the United States will leap frog lithium. So

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Speaker 3: I think the juries out I think people out there

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Speaker 3: should just be prepared that there's.

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Speaker 1: A lot yet to clarify.

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Speaker 3: The FED, though its path I think for September is

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Speaker 3: pretty clear. I think there's a good chance they could

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Speaker 3: do one more cut in December. But I do think

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Speaker 3: as new policies, if new policies come out, it'll take

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Speaker 3: some time for them to digest those, and that may

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Speaker 3: affect their next decisions.

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Speaker 4: When you take a look at the previous Trump presidency,

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Speaker 4: how much of what played out in the economy and

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Speaker 4: the inflationary picture was the fact that we did have

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Speaker 4: a pandemic and some of the policy responses to that,

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Speaker 4: and how much of it was down to fiscal management,

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Speaker 4: do you think and does that give us a gauge

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Speaker 4: of what potentially one way could go post November.

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Speaker 1: So, initially.

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Speaker 3: After COVID first hit, there were substantial supply.

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Speaker 1: Disruptions, particularly for goods.

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Speaker 3: I think as we look forward to today, those supply

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Speaker 3: disruptions have pretty much been resolved, and in fact we

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Speaker 3: have goods disinflation and China over capacity has helped that disinflation.

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Speaker 3: I think the substantial fiscal policy. The CARES Act was

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Speaker 3: twenty twenty, the American Rescue Act was twenty twenty one,

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Speaker 3: spent over the following years, Infrastructure Act, Inflation Reduction Act.

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Speaker 3: That's six trillion of legislation. The COVID gap quote unquote

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Speaker 3: was about two trillion. And so I think it's clear

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Speaker 3: to me that we've stimulated demand in the United States,

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Speaker 3: probably overheated the workforce and the FED rate increases, although

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Speaker 3: maybe late they've now done what they needed to do,

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Speaker 3: and I think it's starting to cool and rebalance the workforce.

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Speaker 3: So initially it was supply, I think ultimately it was

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Speaker 3: excess demand, and I think the FEDS worked hard to

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Speaker 3: try to cool that excess demand.

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Speaker 4: We heard from Governor Christopher Wallers saying that whilst the

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Speaker 4: final destination hasn't been reached yet, that they are getting closer.

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Speaker 4: Do you feel confident that that dual mandate is now

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Speaker 4: within reach and do you think that sort of ultimate

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Speaker 4: self landing.

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Speaker 1: Will be achieved?

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Speaker 4: Is November a big threat to that?

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Speaker 3: So getting down to three percent was going to be

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Speaker 3: relatively doable. I think getting from three to two is

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Speaker 3: going to be slower. I would think that folks at

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Speaker 3: the FED think it may be slower. Having said that,

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Speaker 3: we've made enough progress that I think they could do

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Speaker 3: a rate cut in September, but I think people should

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Speaker 3: be prepared. That doesn't mean we're going to kick off

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Speaker 3: a rate cutting cycle. I think because fiscal policy and

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Speaker 3: fiscal deficits are historically high, and there's other cross currents

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Speaker 3: like deglobalization and the expensive energy transition, I think the

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Speaker 3: FED would be wise to after September take it one

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Speaker 3: meeting in a time, assess any new proposals, what a

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Speaker 3: new administration, if there is one, would do, and I

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Speaker 3: think there'll be more deliberate as opposed to what we've

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Speaker 3: seen in the past. Once you start cutting, you usually

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Speaker 3: have a cycle.

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Speaker 1: This may not.

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Speaker 3: I wouldn't prejudge that this will be a cycle. I

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Speaker 3: think it will be more one.

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Speaker 2: Meeting at a time, and so consequential for all of

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Speaker 2: the global central banks, especially the Bank of Japan with

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Speaker 2: the yen weakness. Such a great time to have you

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Speaker 2: here because you around Goldman Sachs in the nineties here

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Speaker 2: in Tokyo. Are you seeing what is the difference the

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Speaker 2: biggest difference for you? I mean, I don't want to

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Speaker 2: compare it to the nineteen nineties, but just in the

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Speaker 2: sense of are you getting that feeling that normalization will

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Speaker 2: finally happen in this economy.

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Speaker 3: So Goldman Sachs is celebrating our fiftiest anniversary of opening

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Speaker 3: office in Tokyo, and so we're very proud of the

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Speaker 3: Tokyo office. And I think it's been a model at

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Speaker 3: Goldman Sachs for how do you build a office outside

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Speaker 3: the United States, And it's helped us learn a lot

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Speaker 3: about how to globalize the firm. So when I look

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Speaker 3: at Japan now versus the nineties, there have been a

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Speaker 3: number of reforms on a shareholder govern and its crossholdings.

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Speaker 3: The government has now been very encouraging of taking some

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Speaker 3: fourteen trillion of savings and turning some of it more

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Speaker 3: to investment and really stimulating more capitalism. That's caused there's

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Speaker 3: been some reflation here and so we're very optimistic across

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Speaker 3: all of our businesses there'll be great opportunities in Japan.

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Speaker 3: I think Japan is a critical economy in the global

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Speaker 3: economy and some of the great companies in the world,

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Speaker 3: and so I think we think there's great opportunities here.

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Speaker 2: That's sort of the sense that I get when I

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Speaker 2: speak to people coming from outside of Japan, but being

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Speaker 2: here in Japan, there seems to be a lot of skepticism,

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Speaker 2: especially that the boj's policies are actually leading to reflation

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Speaker 2: that might be sustained that actually people might go out

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Speaker 2: and spend. How does a bog battle the deflation there?

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Speaker 3: Remindset so with the BOJ has been battling is there's

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Speaker 3: one headwind in Japan worth mentioning, and that's demographics. Workforce

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Speaker 3: is aging, it's actually shrinking. GDP growth is growth in

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Speaker 3: the workforce plus growth and productivity, and unfortunately workforce growth

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Speaker 3: here has been shrinking. And while there's been a good

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Speaker 3: temporary worker program and more women in the workforce, really

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Speaker 3: there hasn't been any policy to combat that. So I

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Speaker 3: still think that's the big challenge. The central Bank can

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Speaker 3: do what it can to try to ease that challenge,

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Speaker 3: but ultimately need other policies away from monetary policy to

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Speaker 3: deal with this structural issue of shrinking workforce.

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Speaker 2: Oh kaplan, good to have you with us vice chairman

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Speaker 2: of Goldman Sachs and former Dallas FED president joining me

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Speaker 2: here in the Tokyo studio today, thank you