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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Delighted to have with us Robert Kaplan. He's former president

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Speaker 2: and CEO of the Federal Reserve Bank of Dallas, vice

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Speaker 2: chairman currently of Goldman Sachs, and he joins us from

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Speaker 2: the news the Bloomberg News Bureau in Dallas. Robert is

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Speaker 2: great to have you here with us.

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Speaker 3: How are you great to see you? Great to see

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Speaker 3: it doing well?

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Speaker 2: All right, So I want to follow off of what

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Speaker 2: we heard from Professor Judge. She made some really good points.

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Speaker 2: I mean, first of all, what do you make of

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Speaker 2: the back and forth between the President and Fed jer J.

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Speaker 3: Powell?

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Speaker 2: Not really between the two, but really coming from mostly

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Speaker 2: the White House.

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Speaker 4: So I'm going to talk to you about it as

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Speaker 4: if I were in my former seat at the FED,

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Speaker 4: and I would tell you I would be aware of it,

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Speaker 4: but I would be striving to make sure it does

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Speaker 4: not enter into my thinking at all. And I think

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Speaker 4: for most of the folks at the FED and around

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Speaker 4: the FMC table, they're very focused as I would be,

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Speaker 4: on trying to make the right decision in July and

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Speaker 4: then in September, and I would basically expect them to

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Speaker 4: extend humanly possible screen out some of the activities going

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Speaker 4: on externally.

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Speaker 1: How do you do that? I mean, this is a

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Speaker 1: psychological question as much as it is a question about

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Speaker 1: data and the FEDS dual mandate. But how do you

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Speaker 1: drown out the noise when it seems to be coming

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Speaker 1: at least in our world almost twenty four to seven.

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Speaker 4: So the way you drown out the noise, I would say,

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Speaker 4: is the task of figuring out right now with some

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Speaker 4: of these cross currents, we have the task of figuring

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Speaker 4: out what's the right way to administer monetary policy.

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Speaker 3: That's consuming enough.

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Speaker 4: And I think there's a real ethic and culture at

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Speaker 4: the FED and around the table to divorce your decisions

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Speaker 4: from political pressure or political considerations. That's really firmly ingrained.

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Speaker 4: And I think it's also between colleagues. It's self reinforcing.

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Speaker 4: You reinforce it with each other. I think the current

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Speaker 4: situation which I can get into is complicated enough that

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Speaker 4: would be consuming all of my attention, and I would

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Speaker 4: be having my team very focused on how to how

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Speaker 4: to weigh these trade offs well.

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Speaker 2: And the President continues to say Rob that you know,

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Speaker 2: Vet jo Jpal is going to do the right thing.

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Speaker 2: You look at the economy. You do so for you

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Speaker 2: know your team over at Goldman Sachs and some of

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Speaker 2: the clients. How do you see the economy? What is

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Speaker 2: the right thing in terms of monetary policy right now

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Speaker 2: in your view?

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Speaker 4: So here's what I'm seeing in the economy, and I

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Speaker 4: spend bulk of my time with clients across our divisions. Globally,

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Speaker 4: US economy is solid, but I would say growth is sluggish.

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Speaker 4: And what do I mean by sluggish? We expect GDP

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Speaker 4: growth this year, if you know, one in a fraction,

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Speaker 4: not a recession, but sluggish. The labor force is tight,

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Speaker 4: but the reason it's so tight, it's that businesses are

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Speaker 4: not hiring very aggressively, but they're also not firing. And

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Speaker 4: we've got a lack of immigration. We've got a real

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Speaker 4: uncertainty with ten million plus undocumented immigrants that are in

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Speaker 4: the workforce, so the unemployment rates likely to stay sticky.

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Speaker 4: In addition, the macro elements are set. You've got enormous

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Speaker 4: global overcapacity in goods, driven heavily by China over capacity.

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Speaker 4: We've got an AI artificial intelligence boom, which should be disinflationary,

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Speaker 4: and the counter to this is we've got this tariff

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Speaker 4: situation going on, which still isn't yet resolved.

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Speaker 3: But I would say the following.

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Speaker 4: The range of outcomes for tariffs in April were very

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Speaker 4: wide narrow down. They may be as low as low

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Speaker 4: to mid teens, they may be as high as high

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Speaker 4: teens the low twenties. That's allowed businesses to get a

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Speaker 4: pretty good grip on what their strategies will be, how

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Speaker 4: much they want to take from suppliers in negotiations, how

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Speaker 4: much has to come out of margin, how much will

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Speaker 4: go in price, and so the thing I'd be struggling

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Speaker 4: with at the FED is, in this disinflationary context, how

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Speaker 4: much will these tariffs lead to more persistent price pressures

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Speaker 4: or are they more likely to be a one time

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Speaker 4: price issue cost issue which then over the horizon will

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Speaker 4: get absorbed and we will return back to a more

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Speaker 4: disinflationary environment, which I would argue is where we are

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Speaker 4: predominantly globally outside the United States. And I'm not ready

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Speaker 4: to conclude that it's time to act in July, but

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Speaker 4: I'd be getting my team ready to be prepared potentially

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Speaker 4: to take action in the September meeting.

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Speaker 1: In the United States. Okay, potentially take action in the

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Speaker 1: September meeting. So it's a ways away, but not really

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Speaker 1: a ways away, just after Jackson Hole in August.

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Speaker 3: Right.

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Speaker 1: So, if we think about this from the perspective of

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Speaker 1: the United States economy and what you said about immigration

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Speaker 1: and the uncertainty around the ten million plus undocumented workers

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Speaker 1: or eight million, however, whatever number we're using to measure

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Speaker 1: this difficult to measure workforce here in the US, is

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Speaker 1: the net effect of President Trump's immigration policy inflationary or disinflationary.

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Speaker 4: The net effect on the workforces you much have. You

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Speaker 4: have a very tight workforce, and this is why businesses

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Speaker 4: are reluctant to fire. That means that wages and this

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Speaker 4: I think is a good thing, are probably firmer you

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Speaker 4: do not have. Though on the fiscal side, some of

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Speaker 4: these big government directed programs like the American Rescue Act,

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Speaker 4: Inflation Reduction Act, infrastructure, and Chipsack. You know that that

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Speaker 4: spigot of government directed spending has been stood down. It's

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Speaker 4: probably been replaced though by more stimulus, tax on overtimes,

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Speaker 4: tax on tips, UH, accelerated depreciation, and others. And I

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Speaker 4: think the net effect of what's going on over the horizon.

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Speaker 4: That may, in fact, when we're looking back a year

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Speaker 4: from now, may say that the overall trend has been disinflationary.

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Speaker 4: The tariffs have basically interrupted that, but only for a

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Speaker 4: period of time, and we're returning to a disinflationary chen.

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Speaker 4: But but I'm not sure yet. And that's what I'd

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Speaker 4: be trying to figure out, and I think that's what

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Speaker 4: the FED participants are trying to figure.

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Speaker 3: Out right now.

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Speaker 2: What is the biggest risk of the US economy right now?

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Speaker 2: Is it the tariffs and the and the deals that

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Speaker 2: are being worked out.

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Speaker 4: Uh, I would say the following, Uh, We're we're gonna

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Speaker 4: We're gonna go into twenty twenty six with some additional

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Speaker 4: stimulus coming from the bill that was just passed. We've

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Speaker 4: got a very tight labor force. I think a risk

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Speaker 4: is most businesses I talk to are struggling to find workers,

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Speaker 4: particularly in the service sector. I think there may have

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Speaker 4: to be a look at increasing legal immigration and or

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Speaker 4: clarifying the status of these millions of undocumented immigrants because

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Speaker 4: businesses are telling me they're struggling to find workers. And

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Speaker 4: then yes, on the tariffs. If we're in the load

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Speaker 4: to mid teens, I think the risk of being able

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Speaker 4: to manage this is lower. I think if they're mid

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Speaker 4: to high teens or twenty percent, I think it will

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Speaker 4: take longer. And I'm still, though overall optimistic about next year.

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Speaker 4: The biggest concern I have for the US economy is

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Speaker 4: the deficit. We're now net debt to GDP over one

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Speaker 4: hundred percent. We're going to run this year as high

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Speaker 4: as a seven percent and a GDP deficit, although we'll

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Speaker 4: have to see, and I still think our ability to

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Speaker 4: sell long duration treasuries is still our biggest challenge, and

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Speaker 4: that's the biggest thing I'm concerned about.

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Speaker 2: We are, of course talking with Rob Kaplan and vice

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Speaker 2: chairman of our Goldmnzak's former president and CEO of the

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Speaker 2: Federal Reserve Bank of Dallas, joining us from the Bloomberg

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Speaker 2: News bureau in Dallas. Hey, Rob, one thing I wanted

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Speaker 2: to ask you. Former Treasury in White House National Economic

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Speaker 2: Council Chief Larry Summers said on Bloomberg Television's Wall Street

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Speaker 2: Week with David Weston that he backed Treasury Secretary Scott

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Speaker 2: Besson's questioning of the fed's non monetary policy activities and

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Speaker 2: saying that there were some areas that are distinct from

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Speaker 2: the broader issue of central bank independence. I think it's

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Speaker 2: safe to say that even some that really fiercely defend

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Speaker 2: FED independence say it is a good idea to review.

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Speaker 2: Do you think the FED is overreached in some areas.

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Speaker 4: I think there's two or three areas that are healthy

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Speaker 4: to look at. One, the FED has very aggressively used

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Speaker 4: its balance sheet, increased its balance sheet QI in the last.

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Speaker 3: Number of years.

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Speaker 4: I think there's an argument, and it's worth a debate.

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Speaker 4: Maybe the bar should be higher to roll out the

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Speaker 4: balance sheet in the midst of a downturn, emergency powers gs.

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Speaker 4: Maybe a higher bar for using that balance sheet because

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Speaker 4: it has a distorting effect on the treasury market and

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Speaker 4: financial markets. I think some of the changes they're being

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Speaker 4: made now to do a revamp of bank regulation, I

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Speaker 4: think are constructive and I think those are good moves.

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Speaker 4: And then to the points that have been made, I

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Speaker 4: think it's always a good idea to take a look

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Speaker 4: at the FED. How can we operate better? There's twelve

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Speaker 4: reserve banks, there's a big board of governors. Are there

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Speaker 4: operations that could be integrated? Could there be more efficiencies

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Speaker 4: created to make it more economical. Sure, there are opportunities

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Speaker 4: there and kind of review, though, is healthy and constructive

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Speaker 4: and I think should be expected, and I think it

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Speaker 4: is a positive thing for the FED.

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Speaker 2: Rob forgive me for going back to kind of where

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Speaker 2: we started, and I think about man, I would be

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Speaker 2: super rich and living probably on Anguilla if I had

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Speaker 2: a buff for every time I said we were living

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Speaker 2: in unusual and times. But watching yesterday, Tim's been doing

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Speaker 2: this a long time. I've been doing this a long time.

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Speaker 2: To see a president with a FED share touring the

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Speaker 2: Federal Reserve, I think it's fair to say that was

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Speaker 2: super unusual.

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Speaker 1: That has happened in two decades.

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Speaker 2: So tell me someone who understands the FED the importance

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Speaker 2: of FED independence. You know, your conversations are the things

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Speaker 2: you were being asked around that, and what you think

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Speaker 2: is the productive takeaway from seeing that? Or were you

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Speaker 2: as shocked as kind of we all were.

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Speaker 4: Yeah, well, I thought I thought Jpalll handled it very

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Speaker 4: well and I really think that as a leader of

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Speaker 4: the FED, and I would guess what they're saying inside

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Speaker 4: the FED. Please screen this out. Let's focus on the

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Speaker 4: job at hand. We've got a big job to do.

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Speaker 4: The job is not finished. Let's make sure we're focused

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Speaker 4: on the July meeting, the September meeting, our role in

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Speaker 4: bank supervision, and all the other.

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Speaker 3: Community activities we do.

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Speaker 4: That has got to be the overwhelming focus to me,

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Speaker 4: watching the events of yesterday, it reminds me.

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Speaker 3: Back to what I said earlier.

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Speaker 4: We are much more highly leveraged than we were pre COVID,

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Speaker 4: whether we like it or not. Now it's spurred economic

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Speaker 4: growth in the last three or four years, but some

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Speaker 4: of that was due to excess fiscal spending. I do

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Speaker 4: think the big looming issue for the country, and I'm

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Speaker 4: optimistic generally, we are going to have to find ways

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Speaker 4: to moderate our debt growth, to be aware of the

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Speaker 4: fact we're running historically high deficit at a time of

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Speaker 4: full employment. We tend to run big deficits at when

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Speaker 4: we have high unemployment, not low unemployment. So this sensitivity

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Speaker 4: to the cost of everything, I think that part of it,

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Speaker 4: I think is a constructive development, and we're going to

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Speaker 4: have to do more to find ways to de leverage

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Speaker 4: and moderate idead growth for the good of our kids

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Speaker 4: and our grandkids and to have a healthier economy.

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Speaker 3: Do you think fed Shair J.

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Speaker 1: Powell concludes his term in May twenty twenty six as

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Speaker 1: Chair of the Federal Reserve and then serves until January

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Speaker 1: twenty twenty eight on the Board of Governors.

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Speaker 4: I'll leave it to Jay to talk about what he

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Speaker 4: does after he's done being FED Shair. I would guess

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Speaker 4: I believe strongly he will finish out his term as chair.

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Speaker 4: It wouldn't surprise me if he made the decision then

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Speaker 4: to step down at that time.

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Speaker 3: But he'll make that decision.

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Speaker 4: But I'd be optimistic that he will finish out his

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Speaker 4: term is chair.

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Speaker 2: Do you think wait, I got to just add because

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Speaker 2: Professor Judge asked this, you know when the President might

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Speaker 2: take any more steps to put more pressure on FED

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Speaker 2: Chier J.

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Speaker 3: Powell.

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Speaker 2: Do you think it's just going to be the same

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Speaker 2: drum beat or do you think you could take it

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Speaker 2: even further?

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Speaker 4: So listen, I will say this, The sequence of events

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Speaker 4: over the last several months have meant that the next

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Speaker 4: FED chair will have a onus on him or her

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Speaker 4: to demonstrate that they are divorced from political pressure and

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Speaker 4: political considerations. Very critical to the leadership of the FED

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Speaker 4: that they demonstrate that, and I think it's critical to

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Speaker 4: people in the economy and the financial markets, not just

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Speaker 4: here but around the world, that that person demonstrate that.

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Speaker 3: And I think this just.

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Speaker 4: Increases the emphasis on their need to demonstrate that, and

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Speaker 4: I'm hopeful they will.

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Speaker 2: All Right, don't tell anybody, Rob but I know we're

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Speaker 2: not supposed to have favorite interviews of the week, but

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Speaker 2: this was definitely a fave. Robert Kaplan, have a great weekend.

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Speaker 2: He is former president and CEO of the Federal Warzer

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Speaker 2: Bank of Dallas, and of course vice chairman at Goldman Sachs.

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Speaker 2: Joining us from Dallas