WEBVTT - Rob Kaplan, Goldman Sachs Vice Chairman & Former Dallas Fed President, Talks Kevin Warsh

0:00:02.520 --> 0:00:08.559
<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. Thanks so much for

0:00:08.600 --> 0:00:09.600
<v Speaker 1>being with us, Rob.

0:00:10.280 --> 0:00:12.440
<v Speaker 2>First of all, I want to talk about your reaction

0:00:12.520 --> 0:00:14.400
<v Speaker 2>to Kevin worsh as the next chairman of the FED.

0:00:14.600 --> 0:00:17.200
<v Speaker 2>You know him, You've brought him to Dallas in the past.

0:00:17.360 --> 0:00:18.520
<v Speaker 2>What do you think about this.

0:00:18.960 --> 0:00:22.600
<v Speaker 3>I think he'll be an excellent FED chair. He's got

0:00:22.640 --> 0:00:26.279
<v Speaker 3>a lot on his plate, especially in the next number

0:00:26.360 --> 0:00:28.880
<v Speaker 3>of weeks. He's got to get prepared for that first

0:00:28.920 --> 0:00:31.720
<v Speaker 3>meeting and the press conference and the dot plot explanation.

0:00:32.040 --> 0:00:35.320
<v Speaker 3>But I think he'll do a very good job. And

0:00:35.840 --> 0:00:37.599
<v Speaker 3>he has a number of challenges in front of him,

0:00:37.600 --> 0:00:39.080
<v Speaker 3>but I think he'll be an excellent FED cher.

0:00:39.440 --> 0:00:41.640
<v Speaker 2>You just pointed to that next meeting. What do you

0:00:41.680 --> 0:00:44.520
<v Speaker 2>expect in terms of interest rates, especially when you're looking

0:00:44.600 --> 0:00:45.800
<v Speaker 2>at inflation in the war.

0:00:46.320 --> 0:00:46.520
<v Speaker 4>Yes.

0:00:46.600 --> 0:00:49.640
<v Speaker 3>So the reasons I say it's challenging is if you

0:00:49.760 --> 0:00:54.000
<v Speaker 3>roll back the clock, you know, eight weeks ago, I

0:00:54.000 --> 0:00:56.800
<v Speaker 3>think the view was the next FED move would be

0:00:56.880 --> 0:01:00.360
<v Speaker 3>a cut, just a question of how late you was

0:01:00.360 --> 0:01:03.680
<v Speaker 3>it going to be because of oil prices being elevated

0:01:03.680 --> 0:01:07.959
<v Speaker 3>and inflation readings being stickier. Now the view is and

0:01:08.040 --> 0:01:11.600
<v Speaker 3>probably the conditions would warrant. The next FED move may

0:01:11.640 --> 0:01:15.400
<v Speaker 3>actually be a raise, and they may do nothing this year.

0:01:15.880 --> 0:01:17.400
<v Speaker 3>And if they were going to do something, it would

0:01:17.440 --> 0:01:21.240
<v Speaker 3>be more negative from a rate increase point of view,

0:01:21.640 --> 0:01:24.000
<v Speaker 3>because they have to deal with inflation. So he's going

0:01:24.080 --> 0:01:26.920
<v Speaker 3>to have to work through that and the meeting itself.

0:01:26.959 --> 0:01:29.600
<v Speaker 3>He's got to get to know people after day around

0:01:29.640 --> 0:01:31.760
<v Speaker 3>the table, he has to understand their views.

0:01:31.800 --> 0:01:33.360
<v Speaker 4>This is before the mid June meeting.

0:01:34.040 --> 0:01:37.160
<v Speaker 3>He's got to clean up the statement so it has

0:01:37.200 --> 0:01:39.959
<v Speaker 3>more of a neutral bias rather than remember the three

0:01:40.040 --> 0:01:42.160
<v Speaker 3>descents in the last meeting about the downward a bias.

0:01:42.160 --> 0:01:43.200
<v Speaker 4>He has to clean that up.

0:01:43.560 --> 0:01:47.039
<v Speaker 3>And there's a dot plot that comes out after this meeting,

0:01:47.640 --> 0:01:50.320
<v Speaker 3>and the dot plot's going to show expectations for.

0:01:50.320 --> 0:01:53.520
<v Speaker 4>The rate path are firmer, not lower.

0:01:54.000 --> 0:01:57.040
<v Speaker 3>And so he's going to be responsible for explaining the

0:01:57.080 --> 0:01:59.400
<v Speaker 3>dot plot in the press conference. So that's a lot

0:01:59.440 --> 0:02:02.080
<v Speaker 3>to prepare for in the next three or four weeks.

0:02:02.160 --> 0:02:04.480
<v Speaker 2>As you very well know, you saw how President Trump

0:02:04.720 --> 0:02:08.480
<v Speaker 2>was very public about Jerown Powell and his decisions.

0:02:09.000 --> 0:02:10.200
<v Speaker 1>President Trump saying.

0:02:10.040 --> 0:02:11.640
<v Speaker 2>Today and this really stuck out to me in the

0:02:11.639 --> 0:02:14.000
<v Speaker 2>press conference, he's telling Kevin Warsh, I want you to

0:02:14.000 --> 0:02:14.680
<v Speaker 2>be independent.

0:02:14.720 --> 0:02:16.840
<v Speaker 1>I want you to do your own thing. Is that

0:02:17.080 --> 0:02:18.000
<v Speaker 1>even possible?

0:02:18.520 --> 0:02:22.040
<v Speaker 3>Yeah, I think it's not only possible, I think it's essential.

0:02:22.560 --> 0:02:25.840
<v Speaker 3>And I think Donald Trump, in his comments obviously is

0:02:25.960 --> 0:02:30.600
<v Speaker 3>indicating that, and Kevin Warsh knows that, meaning he has

0:02:30.720 --> 0:02:34.080
<v Speaker 3>to be seen not only in the room at the

0:02:34.200 --> 0:02:38.240
<v Speaker 3>FOMC as is independent, but I think to the public

0:02:39.080 --> 0:02:42.440
<v Speaker 3>for the Fed's moves to have credibility, I think he'll

0:02:42.440 --> 0:02:46.760
<v Speaker 3>have to position himself as an independent arbiter who's trying

0:02:46.760 --> 0:02:49.840
<v Speaker 3>to make the very best decisions to make sure we

0:02:49.919 --> 0:02:54.400
<v Speaker 3>control inflation and we have full employment and so whatever

0:02:54.760 --> 0:02:57.679
<v Speaker 3>public statements might have been made in leading up to

0:02:57.760 --> 0:03:00.320
<v Speaker 3>confirmation and up to now, I think he can wipe

0:03:00.320 --> 0:03:03.600
<v Speaker 3>the slate clean on those and I think Kevin worsh will,

0:03:03.639 --> 0:03:06.440
<v Speaker 3>and my advice to him would be he needs to

0:03:06.480 --> 0:03:10.160
<v Speaker 3>not worry about any political constituencies at all, and I

0:03:10.160 --> 0:03:12.079
<v Speaker 3>don't think he will. He has to worry about doing

0:03:12.120 --> 0:03:12.520
<v Speaker 3>the job.

0:03:12.760 --> 0:03:15.520
<v Speaker 2>Former FED share Jerome Powell has decided to stay on

0:03:15.840 --> 0:03:19.600
<v Speaker 2>as governor. You talked about the voices in the room.

0:03:19.760 --> 0:03:21.640
<v Speaker 1>How does the new FED chair handle that?

0:03:22.440 --> 0:03:23.760
<v Speaker 4>Well? I would guess j.

0:03:24.000 --> 0:03:30.920
<v Speaker 3>Powell's approach will be to be as quiet as humanly possible,

0:03:31.200 --> 0:03:33.440
<v Speaker 3>given he's sitting around the table and he'll get a

0:03:33.480 --> 0:03:36.680
<v Speaker 3>turn to speak, but I think he wants to fade

0:03:37.240 --> 0:03:40.560
<v Speaker 3>into the background as much as he can allow the

0:03:40.600 --> 0:03:43.880
<v Speaker 3>new FED chair to take over. He's staying for a

0:03:44.000 --> 0:03:47.760
<v Speaker 3>very narrow reason, I believe, which is he's worried about

0:03:47.800 --> 0:03:52.320
<v Speaker 3>the legal overhang, and I would hope that Japalell stay there,

0:03:52.360 --> 0:03:56.560
<v Speaker 3>will the time frame will be minimized as little as possible,

0:03:56.600 --> 0:03:58.480
<v Speaker 3>but I think he won't. He'll try not to do

0:03:58.640 --> 0:04:01.720
<v Speaker 3>anything that might impede the ability of Kevin worsh to

0:04:01.720 --> 0:04:03.680
<v Speaker 3>step up and take control and do his job.

0:04:03.880 --> 0:04:04.400
<v Speaker 1>I'm curious.

0:04:04.400 --> 0:04:06.360
<v Speaker 2>I want to shift to Goldman Sachs before we let

0:04:06.400 --> 0:04:08.800
<v Speaker 2>you go. I want to know what your clients are

0:04:08.840 --> 0:04:11.080
<v Speaker 2>telling you right now about AI.

0:04:12.080 --> 0:04:18.200
<v Speaker 3>So we obviously know that inflation's been stickier, the ray

0:04:18.279 --> 0:04:22.400
<v Speaker 3>curve is moving up. It's having some challenging effects on

0:04:22.440 --> 0:04:26.000
<v Speaker 3>the economy low modern income consumers. But to your point,

0:04:26.040 --> 0:04:30.600
<v Speaker 3>against all that, you've got a structural, historic, structural trend

0:04:31.200 --> 0:04:35.680
<v Speaker 3>of not only AI infrastructure to build a compute, that's

0:04:35.680 --> 0:04:38.000
<v Speaker 3>the eight hundred billion being spent this year, but AI

0:04:38.160 --> 0:04:43.640
<v Speaker 3>adoption and what we're seeing is every business is having

0:04:43.680 --> 0:04:47.320
<v Speaker 3>to work on use cases about how they can build

0:04:47.320 --> 0:04:50.400
<v Speaker 3>in AI adoption to improve their business. Here's how it's

0:04:50.440 --> 0:04:54.640
<v Speaker 3>playing out in the US and the economic growth. Economic

0:04:54.680 --> 0:04:59.960
<v Speaker 3>growth is solid but kind of sluggish. Corporate earnings grow

0:05:00.240 --> 0:05:03.440
<v Speaker 3>on the other hand, is being revised upward, and I

0:05:03.440 --> 0:05:07.240
<v Speaker 3>think we're going to see potentially a multi year trend

0:05:07.240 --> 0:05:12.760
<v Speaker 3>where SMP earnings are improving at double digit rates, even

0:05:12.800 --> 0:05:15.920
<v Speaker 3>though GDP growth is a little bit sluggish. It's going

0:05:16.000 --> 0:05:19.279
<v Speaker 3>to be more concentrated in smaller names, but many businesses

0:05:19.480 --> 0:05:22.480
<v Speaker 3>are going to use AI to improve their margins and

0:05:22.520 --> 0:05:25.040
<v Speaker 3>their business. And that's what we're hearing from clients.

0:05:25.200 --> 0:05:27.440
<v Speaker 2>Before I let you go, we're sitting here in Texas.

0:05:27.520 --> 0:05:30.760
<v Speaker 2>You're going to have a large, large new office in Dallas,

0:05:30.800 --> 0:05:33.560
<v Speaker 2>well on your way to more than five thousand employees here.

0:05:33.640 --> 0:05:35.800
<v Speaker 2>What are you hearing from those that are deciding, Hey,

0:05:35.839 --> 0:05:37.320
<v Speaker 2>we're going to move to Texas.

0:05:37.640 --> 0:05:42.320
<v Speaker 3>So at our firm, we've got already forty five hundred

0:05:42.360 --> 0:05:44.440
<v Speaker 3>plus people here on our way to as you said,

0:05:44.480 --> 0:05:45.440
<v Speaker 3>over five thousand.

0:05:46.360 --> 0:05:49.080
<v Speaker 4>That's part of a global firm.

0:05:49.520 --> 0:05:53.719
<v Speaker 3>That has forty five thousand plus or minus people globally.

0:05:53.800 --> 0:05:56.440
<v Speaker 3>This will be a major presence, and one of the

0:05:56.480 --> 0:06:02.120
<v Speaker 3>things we like about Texas is to growing state, magnet

0:06:02.240 --> 0:06:08.600
<v Speaker 3>for people and firms here, pro business culture, access to talent,

0:06:09.000 --> 0:06:11.400
<v Speaker 3>and one of the things that we're also seeing there's

0:06:11.480 --> 0:06:18.800
<v Speaker 3>a very collaborative atmosphere between government, business, academia, nonprofits to

0:06:18.880 --> 0:06:22.440
<v Speaker 3>where we have shared ownership, and I think that kind

0:06:22.440 --> 0:06:25.440
<v Speaker 3>of mindset has been a magnet.

0:06:25.040 --> 0:06:26.840
<v Speaker 4>For people and firms to move here.

0:06:26.880 --> 0:06:30.359
<v Speaker 3>It's a very welcoming environment and pro business in a

0:06:30.400 --> 0:06:36.000
<v Speaker 3>constructive way, and I think that's some of the various

0:06:36.040 --> 0:06:39.000
<v Speaker 3>things that we like at Gold and Sacks and many

0:06:39.000 --> 0:06:41.120
<v Speaker 3>of our clients like, which is why.

0:06:40.920 --> 0:06:41.719
<v Speaker 4>They're coming here.

0:06:42.040 --> 0:06:43.960
<v Speaker 1>Rob Kaplan, thanks so much for being with us.