WEBVTT - Former Dallas Fed President Robert Kaplan Talks Uncertain US Economy

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>We turn now to Dexis, where our Texas Bureau Chief

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<v Speaker 2>Julie Fine is sitting down with Robert Kaplan, the former

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<v Speaker 2>president of the Dallas FED.

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<v Speaker 3>Julie, Hey, Rob, thanks so much for being with us.

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<v Speaker 3>You know, they were just talking about Joe and Kayley

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<v Speaker 3>were just discussing tariffs are set to go into effect tomorrow.

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<v Speaker 3>In your role as vice president at Goldman Sachs, you're

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<v Speaker 3>talking to CEOs all over the country. How are they

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<v Speaker 3>handling this possibility, What changes are they making to their businesses.

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<v Speaker 2>So there's there's a little bit of skepticism as to

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<v Speaker 2>whether ultimately they're going to be tariffs on Mexico and Canada.

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<v Speaker 2>And the reason for that is logistics and supply chain

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<v Speaker 2>arrangements with Mexico and Canada are so central to domiciling

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<v Speaker 2>manufacturing in the United States and global competitiveness. I think

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<v Speaker 2>there's still a hope that even if they're put on,

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<v Speaker 2>they want on beyond beyond for long, and maybe they'll

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<v Speaker 2>be threatened and never get put on.

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<v Speaker 1>I think they feel differently about.

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<v Speaker 2>Tariffs on China, maybe relating to Europe, but I think

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<v Speaker 2>people believe Eventually there needs to be a North American

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<v Speaker 2>strategy for US trade, and that means Mexico and Canada

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<v Speaker 2>are very central to that North American strategy.

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<v Speaker 3>So do you think that CEOs are changing their businesses

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<v Speaker 3>right now planning? You know, what are you hearing in

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<v Speaker 3>that realm?

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<v Speaker 2>I'd say they are pausing and trying not to overreact,

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<v Speaker 2>but are being prepared that they may have to make

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<v Speaker 2>substantial changes. I don't think we're to the point where

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<v Speaker 2>they're they're jumping at some of these potential tariffs or threats,

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<v Speaker 2>particularly again on Mexico and Canada, but they're they're getting

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<v Speaker 2>prepared to make alternative plans.

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<v Speaker 1>The concern is.

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<v Speaker 2>It will raise costs and it may undermine their competitiveness globally,

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<v Speaker 2>and those are things that I think are probably you'd

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<v Speaker 2>prefer not to have.

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<v Speaker 3>How do you think the FED will should respond and

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<v Speaker 3>are there any long term term concerns for the economy?

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<v Speaker 2>So the FED will be more likely to look at

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<v Speaker 2>the whole puzzle, not just one action. So government spending cuts, changes,

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<v Speaker 2>the immigration changes, the energy ecosystem changes, the regulation, and

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<v Speaker 2>then tariffs are part of that puzzle. And what you're

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<v Speaker 2>seeing in the economy is it appears to be a

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<v Speaker 2>slowing of GDP growth. Will know better as the weeks

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<v Speaker 2>go on, so probably somewhat slower growth and price is

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<v Speaker 2>staying sticky. So I think the FED, at least in

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<v Speaker 2>this upcoming meeting is most likely to do nothing, and

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<v Speaker 2>they're going to take at one meeting at the time

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<v Speaker 2>and try to assess these changes.

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<v Speaker 3>Elon Muss you're well familiar living here in Texas now

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<v Speaker 3>running dough. She's meeting the cabinet meeting just this weekend.

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<v Speaker 3>He said on exit the FED is absurdly overstaffed.

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<v Speaker 1>What do you think of that?

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<v Speaker 3>And what do you think of his role in the administration.

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<v Speaker 1>He's made comments like that before. This isn't new.

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<v Speaker 2>I think the FED will not be exempt from every

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<v Speaker 2>other government agency that's going to have to look at

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<v Speaker 2>a costs efficiency, pruning headcount, and I think the federal

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<v Speaker 2>have to be looking at that also.

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<v Speaker 3>Yeah, I mean that's just another example of uncertainty. I

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<v Speaker 3>mean there's so much uncertainty right now for businesses.

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<v Speaker 2>Yeah, so some of the uncertainty we have to go through.

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<v Speaker 1>I would argue we've.

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<v Speaker 2>Had up to now a government excess, government spending led economy,

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<v Speaker 2>and so we're going to try to move maybe painful,

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<v Speaker 2>but move to more normal fiscal spending. And so we

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<v Speaker 2>knew that some of these cuts and squeezes are going

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<v Speaker 2>to slow growth. Then there's the uncertainty that comes with

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<v Speaker 2>what are we gonna do on tariffs? And there's also

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<v Speaker 2>uncertainty on what is workforce growth going to be and

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<v Speaker 2>how far will the deportations go, and are we gonna

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<v Speaker 2>have We're gonna have challenges on finding workers in the

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<v Speaker 2>service sector. Those last two uncertainties I think can be

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<v Speaker 2>addressed at some point by giving more clarity.

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<v Speaker 1>The first one government spending cuts.

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<v Speaker 2>I think we just have to go through that, and yes,

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<v Speaker 2>that will slow growth and it will create uncertainty, but

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<v Speaker 2>I think it's part of de leveraging and we probably

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<v Speaker 2>have to go through it.

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<v Speaker 3>And you touched on this, but there have not been

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<v Speaker 3>mass deportations at this point, but yet there are still

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<v Speaker 3>people very concerned about that. Another area that businesses have

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<v Speaker 3>to tackle in terms of uncertainty.

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<v Speaker 2>Yeah, so I hear this in regular conversations. We may

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<v Speaker 2>only wind up deporting say three hundred thousand or four

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<v Speaker 2>hundred thousand criminals that have come in having said that

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<v Speaker 2>there are millions of workers in this country that are

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<v Speaker 2>undocumented or have temporary status who are uncertain as to

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<v Speaker 2>whether they're going to be allowed to stay here, whether

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<v Speaker 2>they're going to stay in the workforce, whether they should

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<v Speaker 2>go out and spend, and that maybe having some chilling

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<v Speaker 2>effect on the workforce. It can be rectified by some

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<v Speaker 2>clarity about what the intentions are, but many businesses and

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<v Speaker 2>workers are dealing.

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<v Speaker 1>With that uncertainty.

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<v Speaker 3>What do they do in the meantime?

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<v Speaker 2>I think right now, again, we're only five weeks into

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<v Speaker 2>the administration, and people reminding themselves of that. People are

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<v Speaker 2>optimistic about regulatory relief. They're optimistic, but they're pausing.

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<v Speaker 1>And I hear from a lot of businesses.

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<v Speaker 2>We're going to take certain actions, but we're going to

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<v Speaker 2>slow it down because of the uncertain end. So it

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<v Speaker 2>will cause businesses to be more cautious for the time being.

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<v Speaker 2>Maybe not indefinitely, but for the time being.

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<v Speaker 3>You know, it was just like seven weeks ago that

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<v Speaker 3>we talked to you, so that was right before. As

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<v Speaker 3>we're discussing here, a lot has happened in that short

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<v Speaker 3>period of time. We're seeing things like the cryptocurrency market

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<v Speaker 3>rally after the President announced plans for a strategic reserve.

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<v Speaker 3>So what are the trends at this point like that

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<v Speaker 3>that are really sticking out to you?

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<v Speaker 2>So the crypto is I would argue more specific situation

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<v Speaker 2>because Trump has said he wants to elevate crypto as

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<v Speaker 2>an industry and he wants to be a leader in it,

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<v Speaker 2>and they've announced, as you know, that we're going to

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<v Speaker 2>hold more in reserves. I don't think that's parts. I

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<v Speaker 2>don't think that's central to the narrative. The narrative is

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<v Speaker 2>a more organically led economy, less regulated, higher productivity, less

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<v Speaker 2>government spending.

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<v Speaker 1>Eventually we'll be able to.

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<v Speaker 2>Sell treasury securities, you know, sell greater duration, have a

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<v Speaker 2>more financiable government. But we're going through all that right now.

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<v Speaker 2>I think to help this puzzle fit more clear on

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<v Speaker 2>what we plan to do on terrace and what we

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<v Speaker 2>plan to do the workforce, I think that will make

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<v Speaker 2>this puzzle work better. And right now we have a

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<v Speaker 2>broad range of uncertainty. I think it may be helpful

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<v Speaker 2>to narrow it down in order and so that we

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<v Speaker 2>don't slow growth unnecessarily as we're going through this restructuring.

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<v Speaker 3>I want to ask you before I let you go

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<v Speaker 3>being here in Texas about Goldman Sachs. Right down the

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<v Speaker 3>street from us, your new large building. Can you tell

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<v Speaker 3>us if it's on time, what you expect? And I

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<v Speaker 3>do want to ask you when you see all these

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<v Speaker 3>financial companies moving down south, do you expect that to continue?

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<v Speaker 1>Yeah?

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<v Speaker 2>I think it probably will continue. Listen, the story of

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<v Speaker 2>Texas is a story of migration of people and firms

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<v Speaker 2>to the state. Goldman Sachs we have forty five hundred

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<v Speaker 2>people here.

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<v Speaker 1>We are very.

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<v Speaker 2>Optimistic about our business generally, and about the future of

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<v Speaker 2>Texas and about being here in Dallas. We're going to

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<v Speaker 2>serve our clients globally from this Dallas hub. We'll eventually

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<v Speaker 2>have even more people than we do now. We'll move

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<v Speaker 2>into a new building. But I think it's part of

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<v Speaker 2>a story of not only the growth of Texas, but

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<v Speaker 2>we think this is a fantastic place to build our

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<v Speaker 2>business in order to serve our clients not only in

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<v Speaker 2>the United States but globally.

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<v Speaker 3>Rob Cathlin, thanks so much for being with us.