WEBVTT - Goldman Sachs Vice Chairman Rob Kaplan Talks Economic Uncertainty 0:00:02.520 --> 0:00:08.400 Bloomberg Audio Studios, podcasts, radio news. We have an opportunity 0:00:08.400 --> 0:00:11.080 to bring you a fascinating conversation. It's underway right now 0:00:11.080 --> 0:00:14.200 at the Bloomberg sell Side leaders Forum in New York. 0:00:14.360 --> 0:00:17.320 Our colleague, Bloomberg's Eric Shatsker sitting down with Rob Kaplan, 0:00:17.400 --> 0:00:20.200 vice chair at Goldman Sachs, former Dallas FED President. 0:00:20.280 --> 0:00:22.200 Let's listen live. I'm Bloomberg TV and Radio. 0:00:23.640 --> 0:00:29.880 Your career has taken a very interesting trajectory Goldman, Harvard, 0:00:30.120 --> 0:00:33.239 the Fed. Goldman again. Tell us a bit about it, 0:00:33.320 --> 0:00:35.880 how because I think it really helps to establish context 0:00:36.159 --> 0:00:37.520 for what you're going to hear from Rob. 0:00:37.800 --> 0:00:40.320 Well, So, I'm from Kansas City, and I went to 0:00:40.280 --> 0:00:43.560 her City, Kansas, but I went to business school and 0:00:43.680 --> 0:00:45.680 I loved the markets from the time I was young. 0:00:45.720 --> 0:00:48.040 So I went to Goldman Sachs and it was I 0:00:48.080 --> 0:00:52.000 think the perfect place for me. I stayed for twenty 0:00:52.000 --> 0:00:54.760 two to twenty three years, but then I took a 0:00:54.840 --> 0:00:58.000 leave of absence to teach leadership at Harvard Business School. 0:00:58.040 --> 0:01:01.120 I went from instructor to professor senior associate. Them did 0:01:01.120 --> 0:01:04.520 that for ten years, and then a former client was 0:01:04.600 --> 0:01:06.959 chairman of the board of the Dallas FED and I 0:01:07.000 --> 0:01:10.080 always wanted to do public service, and so that's how 0:01:10.080 --> 0:01:12.920 I moved to Dallas to be head of the Dallas FED. 0:01:13.000 --> 0:01:16.360 And in terms of coming back to Goldman, it's a 0:01:16.360 --> 0:01:18.520 different firm. I've been gone for a long time, but 0:01:18.640 --> 0:01:21.960 I was part of recruiting David Solomon and John Waldrin 0:01:22.000 --> 0:01:25.640 to the firm. Believe it or not, I felt like 0:01:25.720 --> 0:01:29.160 I could help, and with what I've learned since I left, 0:01:29.200 --> 0:01:31.759 I felt I could particularly help. So it's been about 0:01:31.760 --> 0:01:33.880 a year and it's been a great experience so far 0:01:33.920 --> 0:01:34.400 to be back. 0:01:35.000 --> 0:01:39.399 Tell us as a vice chairman about your focus, your 0:01:39.440 --> 0:01:44.520 responsibilities and to the degree that they've been articulated for you, 0:01:44.600 --> 0:01:46.880 and to the degree that you've been able to formulate 0:01:46.880 --> 0:01:49.320 them yourself about your objectives. 0:01:49.880 --> 0:01:51.639 So it's funny. 0:01:51.680 --> 0:01:56.040 David and I talked over a year ago about this 0:01:56.120 --> 0:01:59.280 concept and it's held pretty true. I spend two thirds 0:01:59.320 --> 0:02:02.240 of my time on clients all over the world. I'm 0:02:02.280 --> 0:02:05.960 an investment banker by training, but I spend a portion 0:02:06.080 --> 0:02:08.840 of my time in investment banking. I spend a lot 0:02:08.880 --> 0:02:10.960 of my time with trading clients. I spend a lot 0:02:10.960 --> 0:02:13.520 of my time with asset management and private wealth clients 0:02:13.919 --> 0:02:17.000 all over the world, and then because of my leadership 0:02:17.720 --> 0:02:23.440 teaching background, I will teach a leadership class in between 0:02:23.480 --> 0:02:26.640 client meetings somewhere in the world in Golden Sets. Every week, 0:02:26.760 --> 0:02:32.160 I mentor and coach, I annoy people. I try to 0:02:32.200 --> 0:02:35.919 coach business leaders, division heads, heads of the firm about 0:02:35.960 --> 0:02:40.480 things I think we could do better. And that's pretty 0:02:40.520 --> 0:02:44.079 much what we agreed coming in and it's been so far. 0:02:44.120 --> 0:02:47.280 It's been a great experience. It's a fifty billion revenue 0:02:47.280 --> 0:02:51.720 firm with fifty thousand people, so the pool is deep 0:02:52.240 --> 0:02:55.120 and there's more to do than I can do, and 0:02:55.200 --> 0:02:57.320 it's been a fabulous experience so far. 0:02:57.800 --> 0:03:00.480 One of the things Rob that I've always a preciated 0:03:00.720 --> 0:03:05.239 about you and talking to you, is the systematic approach 0:03:05.840 --> 0:03:08.760 you take to studying problems. I'm assuming that this started 0:03:09.360 --> 0:03:11.400 in your earlier days in Goldensacts, but no doubt you 0:03:11.480 --> 0:03:14.160 perfected it while you were teaching at Harvard. We're in 0:03:14.200 --> 0:03:19.120 the midst We're quite clearly in the midst of major 0:03:19.560 --> 0:03:23.799 policy driven structural changes in the US economy, both domestically 0:03:23.840 --> 0:03:29.400 and internationally. Everyone in the room is wrestling with the 0:03:29.440 --> 0:03:34.120 implications of these changes give us your framework how to 0:03:34.120 --> 0:03:34.720 think about this. 0:03:35.280 --> 0:03:37.440 So one of the things I brought to the FED 0:03:37.880 --> 0:03:41.640 is a focus on structural drivers. I'm a business person, 0:03:41.760 --> 0:03:44.800 not an economist, and business people, as most of you know, 0:03:44.920 --> 0:03:48.920 focus on structural drivers. You look at cyclical factors and data, 0:03:49.640 --> 0:03:51.400 but ultimately those come as a. 0:03:51.360 --> 0:03:52.840 Result of structural drivers. 0:03:53.120 --> 0:03:58.600 There's five big structural economic changes going on right now. 0:03:58.880 --> 0:04:02.080 That's a lot for any point in time. What are 0:04:02.120 --> 0:04:06.040 the five? Number one, the administration is trying to take 0:04:06.080 --> 0:04:10.120 what they perceive as an over leveraged US government. It's 0:04:10.160 --> 0:04:13.880 gone from mid seventies debt to GDP pre COVID to. 0:04:13.920 --> 0:04:15.200 Now over one hundred percent. 0:04:15.680 --> 0:04:19.839 And they come into this into their new administration wanting 0:04:19.880 --> 0:04:22.919 to de leverage, to take six and a half seven 0:04:22.960 --> 0:04:27.160 percent of GDP deficits lower. This is where you can 0:04:27.200 --> 0:04:30.120 debate the tactics, but this is where Doze came from, 0:04:31.120 --> 0:04:33.080 and a number of other things. But they would like 0:04:33.200 --> 0:04:36.120 to deleverage. We'll see at the end of day how 0:04:36.120 --> 0:04:39.400 far they get without carving it in titlements. They're doing 0:04:39.440 --> 0:04:43.960 a regulatory review of every industry with the hope that 0:04:44.000 --> 0:04:48.160 we can improve productivity growth. Three ways to grow grow 0:04:48.200 --> 0:04:53.120 the workforce, improve productivity and leverage up. We've exhausted leveraging 0:04:53.680 --> 0:04:59.440 and so productivity growth through a regulatory review is one driver. 0:05:00.040 --> 0:05:05.000 They are trying to do a overhaul of the energy ecosystem, 0:05:05.040 --> 0:05:08.840 So what does that mean. They're trying to increase the 0:05:08.839 --> 0:05:12.760 global oil production. They hope to do it domestically, but 0:05:12.800 --> 0:05:15.760 it's not so easy at lower prices. But they're pushing 0:05:15.800 --> 0:05:18.320 OPEC and Saudi Arabia to produce more. They're going to 0:05:18.360 --> 0:05:21.000 make it easier to run a refinery, permit a refinery, 0:05:21.080 --> 0:05:22.000 do transmission. 0:05:22.400 --> 0:05:23.560 So why are they doing this? 0:05:23.680 --> 0:05:27.839 Because they're sensitive that there are tens of millions of 0:05:27.920 --> 0:05:30.320 families in this country that roll down on an income 0:05:30.640 --> 0:05:32.839 of fifty thousand dollars a year or less. 0:05:33.120 --> 0:05:36.160 They've lost twenty five percent purchasing power. They're struggling to 0:05:36.200 --> 0:05:36.839 make ends meet. 0:05:37.240 --> 0:05:40.120 They help this administration get elected, they want to show 0:05:40.160 --> 0:05:41.760 them a tangible benefit. 0:05:42.160 --> 0:05:43.320 Fourth Big Change. 0:05:43.720 --> 0:05:47.359 One of the reasons the US economy has outgrown the world. 0:05:47.600 --> 0:05:49.960 One of them is, i would argue, is very high 0:05:50.040 --> 0:05:53.440 levels of fiscal spending and special programs. But the other 0:05:53.480 --> 0:05:56.920 reason is we've had a surge in labor force growth 0:05:57.320 --> 0:06:04.320 heavily due to immigration, much of it. Undocumented, they are 0:06:04.680 --> 0:06:07.200 risk of state in the Obviously they are shutting that down. 0:06:08.360 --> 0:06:12.159 They haven't yet ramped up legal immigration, but hopefully they will. 0:06:12.720 --> 0:06:16.080 And they are also working to deport at a minimum, 0:06:16.560 --> 0:06:19.640 people with criminal records. The issue is, which we can 0:06:19.680 --> 0:06:24.679 talk more about. There are many millions of workers in agriculture, 0:06:24.760 --> 0:06:28.320 in construction, other industries who are undocumented. 0:06:28.640 --> 0:06:32.560 They're probably thirteen million Green card holders in the United States. 0:06:32.600 --> 0:06:34.839 In addition, and I would say at a minimum, the 0:06:34.880 --> 0:06:38.520 undocumented workers are very unsure of their status. 0:06:38.839 --> 0:06:39.920 I'm hearing from businesses. 0:06:39.960 --> 0:06:43.279 They're not in some cases coming into work, They're not 0:06:43.360 --> 0:06:45.640 sending their kids in some cases to school, they're certainly 0:06:45.680 --> 0:06:48.919 not shopping. It's having a chilling effect on the workforce 0:06:49.279 --> 0:06:52.360 and probably on consumption. So that's the fourth one, and 0:06:52.160 --> 0:06:53.800 then it gets to the one. We're getting all the 0:06:53.839 --> 0:06:59.880 airtime tariffs and suffice it to say, I had thought 0:07:00.120 --> 0:07:03.599 going into this, if you want to level the playing field, 0:07:04.520 --> 0:07:08.920 which I think makes sense, fairer trade, better access, and 0:07:08.960 --> 0:07:14.640 you want to encourage reshoring, the challenge is you'd probably 0:07:14.760 --> 0:07:18.280 carve out Mexico and Canada because that allows you logistics 0:07:18.280 --> 0:07:21.680 and supply chain arrangements which allows people to domicile here. 0:07:22.240 --> 0:07:26.160 You might even carve out poorer countries who don't have 0:07:26.200 --> 0:07:29.640 a hope to buy our goods. Vietnam might be an example, 0:07:29.960 --> 0:07:32.880 where their GDP per capita is four thousand a person. 0:07:33.560 --> 0:07:36.840 They tend to do lower value added manufacturing. We probably 0:07:36.840 --> 0:07:39.520 don't want here, and they're going to struggle to buy 0:07:39.600 --> 0:07:42.360 US goods because their GDP per capita, And you would 0:07:43.080 --> 0:07:46.000 center on a handful of countries you really want to 0:07:46.080 --> 0:07:52.960 rebalance the arrangement with we've instead created terrace on everyone. 0:07:53.760 --> 0:07:57.600 And I think we're now negotiating deals one by one. 0:07:57.640 --> 0:08:01.800 But it takes time to negotiate a trade deal, and 0:08:01.840 --> 0:08:05.160 it's very critical that there are many things we do 0:08:05.280 --> 0:08:09.600 with China. Yes, they're an adversary in certain things, they're 0:08:09.760 --> 0:08:14.320 a competitor in others, and there's some places where inextricably 0:08:14.360 --> 0:08:18.280 linked agriculture market for our farmers rare earth back to 0:08:18.400 --> 0:08:22.560 US intermediate goods is forty percent of the imports. And 0:08:22.640 --> 0:08:25.080 so I think what you're seeing now is a working 0:08:25.160 --> 0:08:27.400 through one by one how. 0:08:27.240 --> 0:08:27.560 Do we. 0:08:29.920 --> 0:08:33.760 Lower these tariffs because US companies right now are struggling 0:08:34.600 --> 0:08:37.600 to do all this at once in an abrupt way, 0:08:38.240 --> 0:08:40.640 and so that's the process we're working through. But those 0:08:40.640 --> 0:08:44.560 are the five big changes. And if that sounds like 0:08:44.600 --> 0:08:47.680 a lot, it's because it's a lot, and it's a 0:08:47.720 --> 0:08:49.360 lot going on at once. 0:08:49.800 --> 0:08:54.080 There is more going on. Are you leaving those things 0:08:54.160 --> 0:08:57.600 out because they are not big enough or because they 0:08:57.600 --> 0:08:58.840 amount to noise? 0:09:00.160 --> 0:09:02.600 The other things you're referring to, will just say what 0:09:02.640 --> 0:09:06.840 you're I think you're referring to the things going on 0:09:06.960 --> 0:09:16.280 with higher education, other battles away, and I'm I'm always 0:09:16.360 --> 0:09:19.600 careful in my previous job and my current job to 0:09:19.640 --> 0:09:22.720 stay away from the you know, the political parts of these. 0:09:22.760 --> 0:09:26.120 But the one thing I do see around the world 0:09:26.800 --> 0:09:31.200 in pools of capital, which we talk with regularly, is 0:09:31.800 --> 0:09:35.480 countries that maybe a month ago a lot of the 0:09:35.679 --> 0:09:38.440 uncertainty had to do with the abrupt nature of the 0:09:38.480 --> 0:09:41.800 tariffs and adjusting to it. I think it is broadened 0:09:41.800 --> 0:09:45.880 out a little bit where countries and investors around the world, 0:09:45.960 --> 0:09:50.280 including here, are asking what's the institutional makeup of the 0:09:50.400 --> 0:09:53.640 United States, what will it be in the next three 0:09:53.720 --> 0:09:57.080 or four years, and whereas they came into the years 0:09:57.080 --> 0:09:59.600 saying if in doubt, I want to over allocate to 0:09:59.640 --> 0:10:02.960 the dom at a minimum, they're saying, maybe I want 0:10:02.960 --> 0:10:06.400 to be more balanced, and even in some cases they're saying, 0:10:06.440 --> 0:10:08.920 I want to reduce my exposure to the dollar. And 0:10:08.920 --> 0:10:12.040 we're seeing a little bit in weakness of dollar rallying, gold, 0:10:12.480 --> 0:10:15.760 ten year treasury backing up. And I think all this 0:10:15.880 --> 0:10:18.760 is part of a mosaic that we can work through, 0:10:19.360 --> 0:10:23.880 but it's creating this amount of uncertainty, including institutional uncertainty, 0:10:24.480 --> 0:10:28.959 is affecting asset allocation and access to capital for the 0:10:29.080 --> 0:10:29.720 United States. 0:10:29.840 --> 0:10:33.520 There's no question rob in uncertainty is the word on 0:10:33.559 --> 0:10:34.280 everyone's lips. 0:10:34.320 --> 0:10:34.720 You hear it. 0:10:34.760 --> 0:10:38.800 Perhaps now I haven't used the Bloomberg and the AI 0:10:38.920 --> 0:10:42.560 tools that we've been given to determine yet you know 0:10:42.600 --> 0:10:45.920 how much more often we're hearing it. But anecdotally it 0:10:46.000 --> 0:10:50.840 seems like never before. You mentioned earlier, you told us, 0:10:50.840 --> 0:10:52.640 in fact earlier that you spent about two thirds of 0:10:52.679 --> 0:10:55.840 your time with clients. What is the mood in the 0:10:55.840 --> 0:10:59.160 c suite and in the boardroom is it? Would you 0:10:59.200 --> 0:11:01.400 go so far as to say it's one of sort 0:11:01.400 --> 0:11:03.559 of paralysis. 0:11:04.080 --> 0:11:07.280 I wouldn't go that far. In that Listen, we started 0:11:07.280 --> 0:11:09.520 the year. It's interesting because a lot's happened in a 0:11:09.520 --> 0:11:14.800 short period. We started the year with great enthusiasm and optimism, 0:11:14.880 --> 0:11:18.680 and I think the regulatory review was a big part 0:11:18.720 --> 0:11:21.000 of that. And the company said, you know, I'd love 0:11:21.040 --> 0:11:23.840 to improve productivity. We're sort of being constrained in all 0:11:23.880 --> 0:11:27.640 these different ways, and I'm excited that we're going to 0:11:27.679 --> 0:11:33.280 be able to be freer to run a capitalist business. 0:11:33.000 --> 0:11:37.959 That a number of these changes happened, the terriff uncertainty, 0:11:38.520 --> 0:11:41.720 and I'd say i'd say businesses by and large, because 0:11:41.760 --> 0:11:44.600 that's sort of the DNA, including me, of most business people. 0:11:44.960 --> 0:11:50.199 You want to be optimistic, cautiously optimistic, but they're struggling 0:11:50.320 --> 0:11:53.959 right now to be to figure out how they want 0:11:54.000 --> 0:11:57.199 to adjust either supply chains or their business or their 0:11:57.200 --> 0:12:01.560 access to workforce. And they'll, well, they'll work through this. 0:12:01.760 --> 0:12:06.400 Business people adapt. Capital allocators also adapt, but business people 0:12:06.480 --> 0:12:10.320 will adapt. I think to the extent we negotiate, for example, 0:12:10.400 --> 0:12:15.960 tariffs down to mutually zero versus say ten percent or 0:12:16.040 --> 0:12:19.400 twenty percent with these various countries, it will make it 0:12:19.559 --> 0:12:23.480 easier for them to adjust. And right now they don't 0:12:23.600 --> 0:12:25.760 know what the endpoint is going to be in the 0:12:25.800 --> 0:12:29.120 timing of it, and that's why they're wrestling to work 0:12:29.160 --> 0:12:32.040 through the ones that are wrestling. The most last comment 0:12:32.200 --> 0:12:36.080 is big businesses have a lot more levers. Small businesses 0:12:36.320 --> 0:12:40.440 we're hearing are struggling in that they don't have a 0:12:40.440 --> 0:12:43.360 lot of levers and they don't know how to replace 0:12:43.520 --> 0:12:46.400 the supply they've gotten, but they're afraid they're not going 0:12:46.440 --> 0:12:48.840 to be competitive. And many more small businesses we talk 0:12:48.920 --> 0:12:52.319 to are more nervous at this moment about their business 0:12:52.360 --> 0:12:55.640 failing and certainly not being able to employ as many 0:12:55.640 --> 0:12:58.040 people as the employer, certainly not being able to employ 0:12:58.080 --> 0:12:58.760 them full time. 0:12:59.400 --> 0:13:04.000 Problem is that now there are we presume because we 0:13:04.040 --> 0:13:06.800 don't have a ton of visibility into the details, but 0:13:06.840 --> 0:13:10.319 we presume there are multiple negotiations going on with multiple 0:13:10.320 --> 0:13:12.520 countries on multiple timelines. 0:13:12.640 --> 0:13:12.760 Right. 0:13:13.160 --> 0:13:15.800 David Solomon, in fact, was saying earlier today that the 0:13:15.840 --> 0:13:20.200 delay in tariffs didn't decrease the level of uncertainty. In 0:13:20.240 --> 0:13:24.400 some ways, the delay increased the level of uncertainty. So, 0:13:25.480 --> 0:13:28.240 with the feedback that you've been getting from clients, what 0:13:28.440 --> 0:13:34.720 is it that business leaders, CEOs, members of the board 0:13:34.920 --> 0:13:39.280 will need to see to feel a degree of certainty, 0:13:39.280 --> 0:13:43.720 a degree of confidence such that they're more willing to transact. 0:13:43.760 --> 0:13:47.840 They're more willing to commit capital. They're more willing, for example, 0:13:47.960 --> 0:13:50.560 to do what they're largely not doing now, which is 0:13:50.800 --> 0:13:51.840 investing cap X. 0:13:52.960 --> 0:13:56.480 So CEOs are watching the news and their teams are 0:13:56.480 --> 0:14:00.080 watching the news more than they're historically a customer. By 0:14:00.120 --> 0:14:03.920 the way, this administration is talking to businesses very extensively, 0:14:04.160 --> 0:14:07.520 so they're giving their views, but depend on who they are. 0:14:07.600 --> 0:14:11.479 What's an example, many businesses want to see the relationship 0:14:11.520 --> 0:14:16.960 with Canada and Mexico resolved because they need the logistics 0:14:16.960 --> 0:14:20.120 and supply chain arrangements, and if they're going to change those, 0:14:20.720 --> 0:14:24.520 it's not a thirty day process. It is an extensive 0:14:25.000 --> 0:14:28.920 process to move them. They're watching carefully the negotiation going 0:14:28.960 --> 0:14:35.240 on with Japan, and so they're literally just I think 0:14:35.240 --> 0:14:38.800 what would help businesses if they're encouraged listen. They're also 0:14:38.840 --> 0:14:42.120 where it takes a long time to negotiate a trade deal. 0:14:42.280 --> 0:14:44.560 Trail deals are very complicated. 0:14:44.920 --> 0:14:47.480 Normally in the past it might take nine months or 0:14:47.480 --> 0:14:49.480 a year or longer to do a trade deal. 0:14:49.840 --> 0:14:51.200 So they're watching. 0:14:51.480 --> 0:14:54.360 Maybe there's going to be an agreement in principle lower 0:14:54.400 --> 0:14:57.600 the tariffs, then negotiate the details. But I think the 0:14:57.640 --> 0:15:01.320 more progress that's visible over the next couple of weeks 0:15:01.440 --> 0:15:04.200 or thirty days, it will make people think that more 0:15:04.280 --> 0:15:07.720 progress is coming. But every company I talk to has 0:15:07.760 --> 0:15:11.800 a little different supply chain arrangement, whether it's with Vietnam 0:15:12.240 --> 0:15:16.840 or with Canada or Mexico or elsewhere. They're ready to 0:15:16.960 --> 0:15:20.040 adjust that, they're not sure how. The one thing they 0:15:20.120 --> 0:15:24.880 do say is it probably isn't at the moment. Unless 0:15:24.920 --> 0:15:29.160 there is really very high level technology, it's hard to 0:15:29.200 --> 0:15:33.880 imagine replacing all of it in the US and being 0:15:33.880 --> 0:15:34.880 globally competitive. 0:15:34.880 --> 0:15:37.640 And that's the key every question every. 0:15:37.400 --> 0:15:39.400 CEO wants to whatever they're going to do, it's got 0:15:39.440 --> 0:15:43.320 to be globally competitive. The irony is on China, what 0:15:43.400 --> 0:15:46.680 they're looking for is not more news. They're actually looking 0:15:46.800 --> 0:15:49.600 for less. And I was joking around with someone the 0:15:49.680 --> 0:15:53.720 other day. If you hear no discussion from our administration 0:15:53.880 --> 0:15:56.600 or either side about China for a few days, I 0:15:56.600 --> 0:15:59.960 think it may increase confidence that negotiations are going on, 0:16:00.560 --> 0:16:05.560 because with China they need to go on unseen behind 0:16:05.640 --> 0:16:09.040 closed doors, not in the press, And so maybe the 0:16:09.120 --> 0:16:11.880 less said on China that would also encourage businesses. 0:16:12.400 --> 0:16:17.680 I was in Washington last week and had some conversations 0:16:17.720 --> 0:16:21.480 with people in the administration, and one thing I was told, 0:16:21.600 --> 0:16:24.920 which I'm not sure it necessarily surprised me, but it 0:16:25.000 --> 0:16:30.480 stuck with me, is that, of course CEOs are complaining right, 0:16:30.520 --> 0:16:33.600 they're highly self interested. They're either self interested because it's 0:16:33.640 --> 0:16:38.320 their job to husband the bottom lines of their companies, 0:16:38.960 --> 0:16:42.720 or in a similar vein they may be even more 0:16:42.720 --> 0:16:45.560 self interested because their conversation is so closely linked to 0:16:45.600 --> 0:16:49.960 their stock price and so certain. And the message to 0:16:50.000 --> 0:16:53.360 me was that some of what the administration is hearing 0:16:53.360 --> 0:16:55.400 from corporate America is being discounted? 0:16:56.240 --> 0:16:56.840 Is that fair? 0:16:58.680 --> 0:17:03.080 I can't speak for the administration, should they be? I 0:17:03.120 --> 0:17:07.160 think my senses they're listening. What CEOs are now trying 0:17:07.200 --> 0:17:10.200 to also gauge is is this going to lead to 0:17:10.240 --> 0:17:14.159 a modest slowing or something more severe? And that's the 0:17:14.240 --> 0:17:18.280 other thing they're gauging. And the other thing that's a 0:17:18.280 --> 0:17:22.520 little jarring. They're watching the dollar, they're watching gold, and 0:17:22.560 --> 0:17:25.320 they're watching the long end of the curve because I 0:17:25.400 --> 0:17:31.560 think they would be heartened by seeing a capital allocation 0:17:31.680 --> 0:17:36.000 away from dollars and US treasuries come the other way. 0:17:36.520 --> 0:17:36.920 And so. 0:17:39.560 --> 0:17:42.600 CEOs their job is to express their views, be advocates 0:17:42.600 --> 0:17:44.639 for their companies. The job of the administration is to 0:17:44.680 --> 0:17:48.080 make good policy they think's the right thing. There's attension there, 0:17:48.080 --> 0:17:49.840 and there probably ought to be attention. 0:17:49.560 --> 0:17:52.879 There, whether it's from CEOs, whether it's from current or 0:17:52.960 --> 0:17:56.760 former diplomats. There is some level of concern about what 0:17:56.840 --> 0:18:00.920 these changes that we're getting in the world of policy 0:18:00.960 --> 0:18:05.520 from the Trump administration will mean for America's place in 0:18:05.560 --> 0:18:06.040 the world. 0:18:06.240 --> 0:18:07.040 Share with us your. 0:18:06.960 --> 0:18:14.840 Thoughts well, so listen us. Exceptionalism is real. There are 0:18:14.880 --> 0:18:20.080 many distinctive elements of that. We've got the most I mean, 0:18:20.760 --> 0:18:24.000 we have the most most outstanding companies in the world, 0:18:24.480 --> 0:18:28.080 extremely innovative. We're a magnet. We've been a magnet for 0:18:28.200 --> 0:18:31.879 talent globally. Our higher university system has been part of 0:18:31.920 --> 0:18:36.240 that story where we attracted great talent who now run 0:18:36.760 --> 0:18:41.119 and work in many of our most innovative companies. We 0:18:41.320 --> 0:18:43.800 have been a place that workers around the world want 0:18:43.840 --> 0:18:46.640 to come to. My grandparents were not born here, and 0:18:47.080 --> 0:18:51.600 that's been critical. And it's been a place where you 0:18:51.760 --> 0:18:53.720 always know rule of law. 0:18:54.760 --> 0:18:55.960 And other aspects. 0:18:56.000 --> 0:19:00.479 You can have confidence in our own institutional framework. And 0:19:00.560 --> 0:19:04.640 I think people are very hopeful and I'd say cautiously optimistic, 0:19:05.119 --> 0:19:07.040 but they're hopeful that will come out of this period 0:19:07.119 --> 0:19:11.440 with those intact, because that those are critical to our future. 0:19:12.280 --> 0:19:16.800 To the degree that maybe I'll put it differently, American 0:19:16.840 --> 0:19:21.800 companies have in some ways been ambassadors for American exceptionalism 0:19:23.080 --> 0:19:26.240 as America was leading the trade liberalization of the world 0:19:26.359 --> 0:19:30.520 in the post war period. It was led by companies 0:19:30.640 --> 0:19:33.600 like Coca Cola, for example, or Procter and Gamble on 0:19:33.640 --> 0:19:36.480 the consumer goods side, but also companies like Golden Sacks 0:19:36.480 --> 0:19:39.359 and JP Morgan on the financial side. Will it become 0:19:39.400 --> 0:19:42.359 more difficult for American companies to do business outside of 0:19:42.359 --> 0:19:43.520 the United States. 0:19:43.280 --> 0:19:45.600 So this is a blow. So we run a goods 0:19:45.640 --> 0:19:48.199 deficit with the world, and we know that some of 0:19:48.200 --> 0:19:50.440 it is for low value added goods, some of it's 0:19:50.440 --> 0:19:54.120 for intermediate goods, and some of this has to be rebalanced. 0:19:54.600 --> 0:19:56.560 On the other hand, I think you're getting this. We 0:19:56.640 --> 0:20:00.920 also are very aware we run a large service sector 0:20:01.240 --> 0:20:05.160 surplus with the rest of the world. Our leading companies 0:20:05.200 --> 0:20:09.040 here do a lot of business around the globe, and 0:20:09.160 --> 0:20:12.080 when in doubt, we are great beneficiary of that. And 0:20:12.119 --> 0:20:15.800 I think people are also hopeful that we make improvements 0:20:15.840 --> 0:20:20.040 on the manufacturing side, but we don't in retaliation, we 0:20:20.200 --> 0:20:25.760 don't lose our edge on the very distinctive competitive advantage 0:20:25.800 --> 0:20:29.600 we have for services, which is enormously beneficial to the 0:20:29.680 --> 0:20:33.520 United States and causes us to run a big services surplus. 0:20:34.119 --> 0:20:38.840 Let's go back for a moment to your five point 0:20:39.520 --> 0:20:42.080 structural framework that we talked about at the beginning of 0:20:42.119 --> 0:20:47.080 the conversation. One of the things there is, at least 0:20:47.119 --> 0:20:50.080 there would appear to be an underlying objective to each 0:20:50.160 --> 0:20:53.439 of those five things, and you articulated it quite well. 0:20:54.240 --> 0:20:58.600 But what's missing, what I hear from business leaders is 0:20:58.640 --> 0:21:06.880 missing is a coherent narrative. What's the objective, what's the endgame, 0:21:06.960 --> 0:21:08.200 who's supposed to benefit? 0:21:08.840 --> 0:21:09.800 Is there a strategy? 0:21:09.920 --> 0:21:13.440 Yeah, so I think i'll give I'll take a stab 0:21:13.480 --> 0:21:17.240 at that because I think the narrative, if I would 0:21:17.320 --> 0:21:21.919 articulate it, is we want a less government spending led economy, 0:21:22.640 --> 0:21:25.879 more private sector organically driven economy. 0:21:26.560 --> 0:21:29.800 We want we want tough. 0:21:29.600 --> 0:21:33.080 Regulation, but more balanced we can get more productivity growth. 0:21:35.720 --> 0:21:40.520 And I think the purpose of this is to create 0:21:41.359 --> 0:21:45.720 an economy where low moderate income workers can get good 0:21:45.800 --> 0:21:52.560 jobs and with living wages, and we can become more 0:21:53.119 --> 0:21:55.800 globally competitive. I guess that would be the narrative I 0:21:55.800 --> 0:21:58.879 would put on it, and I think most CEOs and 0:21:59.000 --> 0:22:03.600 business leaders in this country share those aspirations. I think 0:22:03.640 --> 0:22:06.040 the debate we're having these days is just more on 0:22:06.080 --> 0:22:09.680 the tactics and the implementation. I think the objectives are 0:22:09.960 --> 0:22:11.320 ones that many people share. 0:22:12.320 --> 0:22:16.119 Speaking of tactics, we should talk about the elephant in 0:22:16.119 --> 0:22:18.359 the room that I've ignored up until now, which is 0:22:18.400 --> 0:22:21.159 the Federal Reserve. Given that you are observed as the 0:22:21.200 --> 0:22:23.439 president of the Dallas FED, your point of view on 0:22:23.480 --> 0:22:28.560 the subject is important and certainly relevant. Chairman Powell is 0:22:28.600 --> 0:22:31.160 the target, as we all know of repeated attacks by 0:22:31.200 --> 0:22:33.639 the president, not quite daily, but it's getting to the 0:22:33.640 --> 0:22:36.520 point where it's close. He has a nickname now too late. 0:22:40.600 --> 0:22:43.639 Try to walk us through Chairman Powell's mindset right now? 0:22:43.720 --> 0:22:44.640 What is he thinking? 0:22:45.320 --> 0:22:50.520 So we come into twenty twenty five with it's interesting. 0:22:51.640 --> 0:22:55.639 Service sector inflation still sticky, running in the low to 0:22:55.720 --> 0:22:59.639 mid threes, but goods inflation in pretty good shape. Goods 0:22:59.640 --> 0:23:04.040 have been disinflating, and so why did we have sticky services? 0:23:04.320 --> 0:23:07.520 Probably a little bit of excess demand. You might attribute 0:23:07.560 --> 0:23:11.000 some of that to excess government spending. Okay, we're now 0:23:11.080 --> 0:23:17.439 shifting to seeing a cost shock, which we don't know 0:23:17.440 --> 0:23:18.960 how it's going to unfold because we don't know what 0:23:19.000 --> 0:23:20.560 these tariff deals are going to be. But at the 0:23:20.560 --> 0:23:23.280 minimum we got right now ten percent tariffs. So we're 0:23:23.320 --> 0:23:28.359 having a cost shock, which affecting goods, which which had 0:23:28.440 --> 0:23:29.560 sort of been helping us. 0:23:30.119 --> 0:23:30.640 And so. 0:23:32.119 --> 0:23:36.080 This is a big structural change, and I think Japali's 0:23:36.119 --> 0:23:38.959 handled this very well. And what he's trying to do 0:23:39.040 --> 0:23:43.440 is say, listen, we are watching carefully. If there's a downturn, 0:23:43.600 --> 0:23:46.800 we're going to carefully monitor market function. If there's any 0:23:47.000 --> 0:23:50.040 question that there's not orderly market function, we're prepared. 0:23:50.000 --> 0:23:51.840