December 4, 2025 • 8 mins
Robert Kaplan, Goldman Sachs vice chair and former Federal Reserve Bank of Dallas president talks about what's next for the Federal Reserve and who could be the next Fed chair.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. I'm very pleased to
say joining us now is Robert Kaplan, vice chairman at
Goldwyn Sachs. Previously, of course, served as the president of
the Federal Reserve Bank of Dallas. Robert, very nice to
have you with us. Thank you so much for coming in.
So let's talk about the here and now in the
US economy and what you see weakening in the labor market.
(00:25):
Is it right that the market that the Fed should
focus on the weakness in the labor market right now?
Speaker 2 (00:30):
There's no question that labor market is weaker and very sluggish.
There's three reasons why. Won Tariffs at least in the
short run, are slowing growth in the United States, and
they're affecting small business disproportionately. And you saw in this
recent job weakness while of the weakness was in small business.
That makes sense. Second, there's been constraints on labor force growth,
(00:56):
which reduces supply. But also there's a multiplier effect. When
jobs go unfilled, it creates other jobs that would have
been created. You know, there's another half a job that
would be creative for every job goes untilled. And then
the shutdown has been a headwind for growth, so it's
not surprising you're seeing some weakness. The trick for the
FED is, as you head into twenty six, we've got
(01:17):
a few tailwinds that may come to the four tax
and centers, tax on tips, tax and overtime, accelerated depreciation,
regulatory relief, getting more for getting further along, and then
still the AI data center power boom I think is underway.
So that's why they're balancing what's the here and now
versus the headwinds likely in twenty six.
Speaker 1 (01:39):
And of course there's a lot of focus on who's
going to lead the FED and who is going to
be leading those conversations about the balance between inflation risks
and joblessness risks in the United States. What's your thinking
on the extent to which the market is concerned about
the person themselves. I mean, this is in the end
setting policy as a group. Activity share clearly has a
(02:01):
big voice at the table. What should we know about
the way these decisions are made and how much it
matters who needs.
Speaker 2 (02:06):
So the FED is focused on full employment and meeting
a two percent inflation target. And the reason they're sticking
with the two percent inflation target is there's still eighty
five million workers in the United States that make fifty
or fifty five grand a year who are struggling to
make ends meet, So affordability is a big issue in
the US. I think any of the candidates mentioned have
(02:28):
the intellectual capability and leadership capability to balance those issues.
I think whoever's in the job, and I won't go
in through individual names, they will need to show that
while they may be from the administration or other sources,
they're going to be intellectually willing to balance those issues
(02:49):
and have that debate without regard to political pressure or
political considerations. And that's I think what the market wants
to see.
Speaker 1 (02:57):
Yes, I mean, how nervous are you about political pressure
to get rates lower in the United States? Is this
something that should preoccupy market participants.
Speaker 2 (03:05):
It is natural for administrations to want lower rates. Lower
rates mean higher real GDP growth, higher nominal growth. But
that's why the FED is a little bit has to
be independent and when necessary push against that. So I
think any of the candidates have the capability of doing it.
And my advice to any candidate would be, if you're
(03:27):
in the job, you want to reiterate that you're going
to respect and try to preserve the independence of the
FED at least on setting the FED funds rate.
Speaker 1 (03:35):
If the White House even and if the FED wants
lower interest rates in the States, and if that's what
they deliver, if the market then worries about inflation, does
that mean that lower the lower rates the Fed sets
don't necessarily get passed on to the real economy. So
could lower rates actually be self defeating?
Speaker 2 (03:50):
So the FED only controls the front end of the curve.
And so what you've seen the Fed is cut one
hundred and fifty basis points since September of twenty four,
has hardly budged. Okay, it's down just a touch, and
so the curve has gotten steeper. So, yeah, the market
sets rates along the curve, and the further out the curve,
(04:11):
the more of their market determined. And so the Fed's
got to be aware that has to have credibility for
its actions.
Speaker 1 (04:20):
And are you concerned about overheating at all in the
US economy? Around the AI theme is that you talked
about how that there aren't going to be some tailwinds
around fiscal stimulus in the state's tax cuts. Also, the
AI build.
Speaker 2 (04:30):
Out there is going to be a firming We believe
at Golden Sex we believe that in twenty six GDP
growth is likely to firm. I think there's clearly enormous
infrastructure spending for AI data center's power. We're in the
early stages of AI adoption. I think there's a lot
(04:50):
of worry geas the AI infrastructure build overdone. I don't
think it's overdone yet. We'll get to the point where
we will think it's overdone. But we're in the early
stage of downstream adoption, and so I think we see
firming growth. I don't see an overheating. But when you
have firming growth, you've got to be worried. Inflation is
running two and three quarters three percent, yes, and so
(05:14):
the FED just got to be very mindful of that.
Speaker 1 (05:16):
And at the call face of the sort of news
flow around corporate adoption of AI, we get drip fed
little nuggets of information about these businesses adopting. Quickly hear
this and pushback, what's your big picture expectation about how
quickly this can change the productivity? Nar? It's it for
the US economy.
Speaker 2 (05:32):
When we're sitting here talking five years from now, I
would guess that you're going to see productivity growth in
the United States and globally. But let's take the United
States as and that could be a half a percentage point.
We believe higher corporate margins could be better. That's on
the one hand. On the other hand, businesses are more
(05:52):
likely to get disrupted. They've got to spend on AI
in the short run that may come out of margin.
Over the long run, I think businesses who do it
well are going to be more productive. So I think
we're going to see the benefits. The surprise is going
to be which use cases work and which use cases
we thought would work but don't, And how does it
affect industry, and how does it affect labor. Yes, and
(06:16):
so we're early in that workers are going to get
disrupted out of functions, out of companies. They're going to
have to move to other functions and companies. This is
where early childhood, literacy, secondary education, skills, training, and adaptability
of the labor force is going to get more important,
and successful countries will invest in that.
Speaker 1 (06:39):
So labor markets will need to adapt and policy what
should policy make as I suppose keep in mind when
it comes to labor markets and how quickly. We might
see the effects of AI on redundancies.
Speaker 2 (06:51):
I think the thing about AI, and like other technological,
technological and other structural change, is how fast it's going
to happen. So policies need to be makers need to
be a where you're gonna have mismatches. You're gonna have
lots of people looking for jobs. You know, computer programmers
who used to have plentiful jobs now will need to
find other types of work. But there's lots of open jobs. Also,
(07:16):
window installers, automotive technicians, electricians, and we've got mismatches. I
would guess in the next two or three years you'll
see that continue. Those will get solved with the passage
of time, but I think we're gonna have to help
people make the adjustment. So there's cyclical issues where lack
(07:36):
of demand creates labor slowing, and then these structural mismatches.
I think we're going to see more structural mismatsages, maybe
even if cyclically we're firming.
Speaker 1 (07:45):
And on that structural story, is it your sense then
that the negatives kick in more quickly than the positives,
So the job cuts come and then the productivity gains
come later.
Speaker 2 (07:54):
I think human beings. Sometimes takes them a while to
change their aspirations, change their job goals. And I think
this is where we have to do a better job
educating workers, helping them adjust making that transition. But AI
is happening so fast the workforce may lag adopting, and
(08:16):
also worker mobility, geographic mobility is probably historically low. Right now,
you know the house, it's situation. You have already owned
your home, fixed rate mortgage. We're going to have to
help people adjust.
Speaker 1 (08:28):
Okay, Robert, thank you very much. Thanks for joining us.
Roll Kaplan, vice chairman of Goldman Sachs and previously, of course,
of the Dallas FED. Thanks to Roll for joining us.
Very great, really great to get his perspective on the
AI up and down sides for the US economy and
the FED conversation. Of course,
Bloomberg Audio Studios, podcasts, radio news. I'm very pleased to
say joining us now is Robert Kaplan, vice chairman at
Goldwyn Sachs. Previously, of course, served as the president of
the Federal Reserve Bank of Dallas. Robert, very nice to
have you with us. Thank you so much for coming in.
So let's talk about the here and now in the
US economy and what you see weakening in the labor market.
(00:25):
Is it right that the market that the Fed should
focus on the weakness in the labor market right now?
Speaker 2 (00:30):
There's no question that labor market is weaker and very sluggish.
There's three reasons why. Won Tariffs at least in the
short run, are slowing growth in the United States, and
they're affecting small business disproportionately. And you saw in this
recent job weakness while of the weakness was in small business.
That makes sense. Second, there's been constraints on labor force growth,
(00:56):
which reduces supply. But also there's a multiplier effect. When
jobs go unfilled, it creates other jobs that would have
been created. You know, there's another half a job that
would be creative for every job goes untilled. And then
the shutdown has been a headwind for growth, so it's
not surprising you're seeing some weakness. The trick for the
FED is, as you head into twenty six, we've got
(01:17):
a few tailwinds that may come to the four tax
and centers, tax on tips, tax and overtime, accelerated depreciation,
regulatory relief, getting more for getting further along, and then
still the AI data center power boom I think is underway.
So that's why they're balancing what's the here and now
versus the headwinds likely in twenty six.
Speaker 1 (01:39):
And of course there's a lot of focus on who's
going to lead the FED and who is going to
be leading those conversations about the balance between inflation risks
and joblessness risks in the United States. What's your thinking
on the extent to which the market is concerned about
the person themselves. I mean, this is in the end
setting policy as a group. Activity share clearly has a
(02:01):
big voice at the table. What should we know about
the way these decisions are made and how much it
matters who needs.
Speaker 2 (02:06):
So the FED is focused on full employment and meeting
a two percent inflation target. And the reason they're sticking
with the two percent inflation target is there's still eighty
five million workers in the United States that make fifty
or fifty five grand a year who are struggling to
make ends meet, So affordability is a big issue in
the US. I think any of the candidates mentioned have
(02:28):
the intellectual capability and leadership capability to balance those issues.
I think whoever's in the job, and I won't go
in through individual names, they will need to show that
while they may be from the administration or other sources,
they're going to be intellectually willing to balance those issues
(02:49):
and have that debate without regard to political pressure or
political considerations. And that's I think what the market wants
to see.
Speaker 1 (02:57):
Yes, I mean, how nervous are you about political pressure
to get rates lower in the United States? Is this
something that should preoccupy market participants.
Speaker 2 (03:05):
It is natural for administrations to want lower rates. Lower
rates mean higher real GDP growth, higher nominal growth. But
that's why the FED is a little bit has to
be independent and when necessary push against that. So I
think any of the candidates have the capability of doing it.
And my advice to any candidate would be, if you're
(03:27):
in the job, you want to reiterate that you're going
to respect and try to preserve the independence of the
FED at least on setting the FED funds rate.
Speaker 1 (03:35):
If the White House even and if the FED wants
lower interest rates in the States, and if that's what
they deliver, if the market then worries about inflation, does
that mean that lower the lower rates the Fed sets
don't necessarily get passed on to the real economy. So
could lower rates actually be self defeating?
Speaker 2 (03:50):
So the FED only controls the front end of the curve.
And so what you've seen the Fed is cut one
hundred and fifty basis points since September of twenty four,
has hardly budged. Okay, it's down just a touch, and
so the curve has gotten steeper. So, yeah, the market
sets rates along the curve, and the further out the curve,
(04:11):
the more of their market determined. And so the Fed's
got to be aware that has to have credibility for
its actions.
Speaker 1 (04:20):
And are you concerned about overheating at all in the
US economy? Around the AI theme is that you talked
about how that there aren't going to be some tailwinds
around fiscal stimulus in the state's tax cuts. Also, the
AI build.
Speaker 2 (04:30):
Out there is going to be a firming We believe
at Golden Sex we believe that in twenty six GDP
growth is likely to firm. I think there's clearly enormous
infrastructure spending for AI data center's power. We're in the
early stages of AI adoption. I think there's a lot
(04:50):
of worry geas the AI infrastructure build overdone. I don't
think it's overdone yet. We'll get to the point where
we will think it's overdone. But we're in the early
stage of downstream adoption, and so I think we see
firming growth. I don't see an overheating. But when you
have firming growth, you've got to be worried. Inflation is
running two and three quarters three percent, yes, and so
(05:14):
the FED just got to be very mindful of that.
Speaker 1 (05:16):
And at the call face of the sort of news
flow around corporate adoption of AI, we get drip fed
little nuggets of information about these businesses adopting. Quickly hear
this and pushback, what's your big picture expectation about how
quickly this can change the productivity? Nar? It's it for
the US economy.
Speaker 2 (05:32):
When we're sitting here talking five years from now, I
would guess that you're going to see productivity growth in
the United States and globally. But let's take the United
States as and that could be a half a percentage point.
We believe higher corporate margins could be better. That's on
the one hand. On the other hand, businesses are more
(05:52):
likely to get disrupted. They've got to spend on AI
in the short run that may come out of margin.
Over the long run, I think businesses who do it
well are going to be more productive. So I think
we're going to see the benefits. The surprise is going
to be which use cases work and which use cases
we thought would work but don't, And how does it
affect industry, and how does it affect labor. Yes, and
(06:16):
so we're early in that workers are going to get
disrupted out of functions, out of companies. They're going to
have to move to other functions and companies. This is
where early childhood, literacy, secondary education, skills, training, and adaptability
of the labor force is going to get more important,
and successful countries will invest in that.
Speaker 1 (06:39):
So labor markets will need to adapt and policy what
should policy make as I suppose keep in mind when
it comes to labor markets and how quickly. We might
see the effects of AI on redundancies.
Speaker 2 (06:51):
I think the thing about AI, and like other technological,
technological and other structural change, is how fast it's going
to happen. So policies need to be makers need to
be a where you're gonna have mismatches. You're gonna have
lots of people looking for jobs. You know, computer programmers
who used to have plentiful jobs now will need to
find other types of work. But there's lots of open jobs. Also,
(07:16):
window installers, automotive technicians, electricians, and we've got mismatches. I
would guess in the next two or three years you'll
see that continue. Those will get solved with the passage
of time, but I think we're gonna have to help
people make the adjustment. So there's cyclical issues where lack
(07:36):
of demand creates labor slowing, and then these structural mismatches.
I think we're going to see more structural mismatsages, maybe
even if cyclically we're firming.
Speaker 1 (07:45):
And on that structural story, is it your sense then
that the negatives kick in more quickly than the positives,
So the job cuts come and then the productivity gains
come later.
Speaker 2 (07:54):
I think human beings. Sometimes takes them a while to
change their aspirations, change their job goals. And I think
this is where we have to do a better job
educating workers, helping them adjust making that transition. But AI
is happening so fast the workforce may lag adopting, and
(08:16):
also worker mobility, geographic mobility is probably historically low. Right now,
you know the house, it's situation. You have already owned
your home, fixed rate mortgage. We're going to have to
help people adjust.
Speaker 1 (08:28):
Okay, Robert, thank you very much. Thanks for joining us.
Roll Kaplan, vice chairman of Goldman Sachs and previously, of course,
of the Dallas FED. Thanks to Roll for joining us.
Very great, really great to get his perspective on the
AI up and down sides for the US economy and
the FED conversation. Of course,
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