Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Robert Kaplan with US
Speaker 1: right now is affiliated with Golden SAX and of course
Speaker 1: his public service at the Dallas Fed. This is great.
Speaker 1: I thought Austin Goulesby's descent yesterday was really something with
Speaker 1: his technology bent his workout at MIT at Chicago. Now,
Speaker 1: I just, you know, my own individual opinion is gools
Speaker 1: be something really worth watching here. Mark Winn is out
Speaker 1: of Ireland Rochester has a shingle out at the Dallas Fed.
Speaker 1: And of course Mark Wynn, under your student guidance years ago,
Speaker 1: has a spectacular essay out on AI. In the summary
Speaker 1: of Mark Winn's work is we just don't know, do we. Well.
Speaker 2: I think we're in the early stages of AI adoption.
Speaker 2: Most of the talk about AI right now it's about
Speaker 2: the infrastructure build. But that's different than the downstream adoption.
Speaker 2: We're in the first or second. I think my own
Speaker 2: view and I think the view of my firm is
Speaker 2: when we talk five years from now, we'll see a
Speaker 2: half a percentage point gain in productivity growth for GDP
Speaker 2: and it will help business. But which use cases work
Speaker 2: and which don't. We're going to spend the next three
Speaker 2: years trying to figure that out.
Speaker 3: Net is it positive for the economy and how material
Speaker 3: because a lot of folks are hanging their hat on
Speaker 3: AI is really being a productivity enhancered to really impact
Speaker 3: the economy.
Speaker 2: If you got a half a percentage point jump in
Speaker 2: productivity growth, that's a huge deal. So we have sluggish
Speaker 2: workforce growth in the United States, we don't have much
Speaker 2: immigration at the moment. Bulk of our GDP growths got
Speaker 2: to come from productivity growth. So AI is very important
Speaker 2: to the world and to the US, And yeah, half
Speaker 2: a percentage point would be a big deal.
Speaker 3: Would you take away yesterday from the FED meeting here?
Speaker 2: Pretty straightforward? I think that I think in the room
Speaker 2: there was a lot more disagreement than it may have
Speaker 2: looked like, only a couple of descents. But we're at
Speaker 2: or near neutral. I think Jpell even said that it
Speaker 2: shows confirms that. I think the neutral rate nominal is
Speaker 2: about three and a half three and three quarters, and
Speaker 2: some of the folks say, with inflation at two and
Speaker 2: three quarters and the job market likely to firm in
Speaker 2: the next year, we shouldn't be at neutral. And I
Speaker 2: think overall they bought insurance in case, the labor market's
Speaker 2: weaker than they thought. But from here it will be
Speaker 2: a conventional FED, meaning something's got changed to move the rate,
Speaker 2: either unemployment needs to worsen or inflation needs to improve.
Speaker 1: Accross the nation. Robert Kaplan with us of Gulbyn Sachs's
Speaker 1: former services, the Dallas FED. So I said, we say
Speaker 1: good morning to Texas as well. So I look at
Speaker 1: yesterday's meeting and I look at all the what ifs
Speaker 1: that are out there, and the bottom line is a
Speaker 1: dual mandate. And I kept carrying them back and forth
Speaker 1: on the dual mandate. What's the history that you've studied
Speaker 1: of whether they focused on inflation or jobs? And don't
Speaker 1: tell me both, because it's really hard to do that well.
Speaker 2: For a lot of the last ten or fifteen years,
Speaker 2: the Fed had the luxury exact pre COVID of not
Speaker 2: having an inflation problem, so it could focus heavily on
Speaker 2: what was going on employment. And I thought employment was weakening.
Speaker 2: It could move post COVID, and I would argue with
Speaker 2: this boom in government spending we had in twenty twenty one,
Speaker 2: twenty two and twenty three, which probably caused supply chain
Speaker 2: dynamics to create an excess demand issue. They got to
Speaker 2: deal with both, and it's harder to deal with both,
Speaker 2: and so then they have to make trade off decisions
Speaker 2: and that's hard to do. And having said that, I
Speaker 2: think they've done a reasonable balancing job. But that's the
Speaker 2: reason for the division in the group. It's not that
Speaker 2: they prioritize one over the other. I think the fact
Speaker 2: is we've had three headwinds. One in the short run,
Speaker 2: tariffs are slowing growth, the immigration policy is slow growth.
Speaker 2: And the shutdown, as you would expect to slow growth,
Speaker 2: but the shutdown is reversing. And going into twenty six,
Speaker 2: we're gonna have tax incentives. We've got this AI boom continuing,
Speaker 2: and I think the economy is likely to firm and
Speaker 2: you saw that in the dot plot. And people are saying,
Speaker 2: you know, the labor weakness is going to affirm. Let's
Speaker 2: do nothing, and that's the reason for the debate.
Speaker 3: Interesting, when you talk to your corporate clients at Goldman Sachs,
Speaker 3: what is their view for twenty twenty six we're seeing
Speaker 3: I kind of look at M and A as a
Speaker 3: barometer of how confident the c suite is and the
Speaker 3: board is, and we're seeing a big M and a
Speaker 3: trade going crazy out there with Warner Brothers Discovery. When
Speaker 3: you talk to your corporate clients, are they confident about
Speaker 3: their ability in twenty twenty six to maybe grow?
Speaker 2: I think most companies believe as we do that twenty
Speaker 2: six you'll see firming GDP growth because of tax and
Speaker 2: centers and other reasons. However, I've never seen a period
Speaker 2: in my business career where there wasn't a bigger concern
Speaker 2: about the need for size and scale to afford the
Speaker 2: technology investment that's driving a lot of merger activity.
Speaker 1: We've covered this a number of times this week as well.
Speaker 1: So then, do we head towards a monopsisistic America? Do
Speaker 1: we have a capitalism that is essentially a big roll
Speaker 1: up to get to CAPEX scale?
Speaker 2: I think you're going to have lots of still small
Speaker 2: emerging businesses powered by AI that can grow and will
Speaker 2: be very attractive, and they'll get to a point where
Speaker 2: they kind of stabilize. You'll have lots of very big,
Speaker 2: huge scale companies that are dominant, and you're gonna have
Speaker 2: a lot in between. And I guess we'd say it
Speaker 2: in between has gotten a lot bigger and the last
Speaker 2: companies that used to think they were big and dominant
Speaker 2: and still aren't less dominant.
Speaker 1: I looked at Procter and Gamble carefully. He said, I
Speaker 1: don't want you to comment on individual security, But what
Speaker 1: does old industry do in there? In between this.
Speaker 2: Build size and scale and make more investment in efficiency, productivity,
Speaker 2: technology and so all that costs money and in the
Speaker 2: short run reduced as margins. And that's why you also
Speaker 2: see a lot of bell tightening right now right now
Speaker 2: to offset some of the margin impact.
Speaker 3: One of the newer developments capital markets. Why is there
Speaker 3: the last fifteen years have been private credit? What's your
Speaker 3: view there?
Speaker 2: I mean, we tend to view it as a continued
Speaker 2: private credit. I'd say has been has been a good addition.
Speaker 2: It's been a good addition to bank lending. The only
Speaker 2: comment I would make, on the other hand is investment
Speaker 2: crede credit spreads are very tight, but it's investment grade.
Speaker 2: I think the watch out is the lesson investment great
Speaker 2: side of private credit. We haven't had a credit cycle
Speaker 2: in many years. We're not going to have one. I
Speaker 2: don't think in twenty six we'll have one eventually, And
Speaker 2: so there's a lot of money flowing in to lesson investment,
Speaker 2: great private credit. Be careful about that.
Speaker 1: Robert Caplin, thank you so much, greatly greatly appreciated, of course,
Speaker 1: the former president of Dallas FED and with Goldman sachs
Speaker 1: Now and of course an affiliation with Harvard over the
Speaker 1: years