July 25, 2025 • 14 mins
Rob Kaplan, vice chairman of Goldman Sachs and former President and CEO of the Federal Reserve Bank of Dallas shares his outlook on monetary policy and discusses the latest as President Trump continues to put pressure on Fed chair Jay Powell to lower interest rates.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:07):
Delighted to have with us Robert Kaplan. He's former president
and CEO of the Federal Reserve Bank of Dallas, vice
chairman currently of Goldman Sachs, and he joins us from
the news the Bloomberg News Bureau in Dallas. Robert is
great to have you here with us.
Speaker 3 (00:21):
How are you great to see you? Great to see
it doing well?
Speaker 2 (00:24):
All right, So I want to follow off of what
we heard from Professor Judge. She made some really good points.
I mean, first of all, what do you make of
the back and forth between the President and Fed jer J.
Speaker 3 (00:35):
Powell?
Speaker 2 (00:35):
Not really between the two, but really coming from mostly
the White House.
Speaker 4 (00:40):
So I'm going to talk to you about it as
if I were in my former seat at the FED,
and I would tell you I would be aware of it,
but I would be striving to make sure it does
not enter into my thinking at all. And I think
for most of the folks at the FED and around
the FMC table, they're very focused as I would be,
(01:02):
on trying to make the right decision in July and
then in September, and I would basically expect them to
extend humanly possible screen out some of the activities going
on externally.
Speaker 1 (01:16):
How do you do that? I mean, this is a
psychological question as much as it is a question about
data and the FEDS dual mandate. But how do you
drown out the noise when it seems to be coming
at least in our world almost twenty four to seven.
Speaker 4 (01:29):
So the way you drown out the noise, I would say,
is the task of figuring out right now with some
of these cross currents, we have the task of figuring
out what's the right way to administer monetary policy.
Speaker 3 (01:45):
That's consuming enough.
Speaker 4 (01:47):
And I think there's a real ethic and culture at
the FED and around the table to divorce your decisions
from political pressure or political considerations. That's really firmly ingrained.
And I think it's also between colleagues. It's self reinforcing.
You reinforce it with each other. I think the current
(02:10):
situation which I can get into is complicated enough that
would be consuming all of my attention, and I would
be having my team very focused on how to how
to weigh these trade offs well.
Speaker 2 (02:21):
And the President continues to say Rob that you know,
Vet jo Jpal is going to do the right thing.
You look at the economy. You do so for you
know your team over at Goldman Sachs and some of
the clients. How do you see the economy? What is
the right thing in terms of monetary policy right now
in your view?
Speaker 4 (02:37):
So here's what I'm seeing in the economy, and I
spend bulk of my time with clients across our divisions. Globally,
US economy is solid, but I would say growth is sluggish.
And what do I mean by sluggish? We expect GDP
growth this year, if you know, one in a fraction,
(03:00):
not a recession, but sluggish. The labor force is tight,
but the reason it's so tight, it's that businesses are
not hiring very aggressively, but they're also not firing. And
we've got a lack of immigration. We've got a real
uncertainty with ten million plus undocumented immigrants that are in
(03:25):
the workforce, so the unemployment rates likely to stay sticky.
In addition, the macro elements are set. You've got enormous
global overcapacity in goods, driven heavily by China over capacity.
We've got an AI artificial intelligence boom, which should be disinflationary,
(03:46):
and the counter to this is we've got this tariff
situation going on, which still isn't yet resolved.
Speaker 3 (03:53):
But I would say the following.
Speaker 4 (03:55):
The range of outcomes for tariffs in April were very
wide narrow down. They may be as low as low
to mid teens, they may be as high as high
teens the low twenties. That's allowed businesses to get a
pretty good grip on what their strategies will be, how
much they want to take from suppliers in negotiations, how
(04:15):
much has to come out of margin, how much will
go in price, and so the thing I'd be struggling
with at the FED is, in this disinflationary context, how
much will these tariffs lead to more persistent price pressures
or are they more likely to be a one time
(04:37):
price issue cost issue which then over the horizon will
get absorbed and we will return back to a more
disinflationary environment, which I would argue is where we are
predominantly globally outside the United States. And I'm not ready
to conclude that it's time to act in July, but
I'd be getting my team ready to be prepared potentially
(04:59):
to take action in the September meeting.
Speaker 1 (05:02):
In the United States. Okay, potentially take action in the
September meeting. So it's a ways away, but not really
a ways away, just after Jackson Hole in August.
Speaker 3 (05:11):
Right.
Speaker 1 (05:11):
So, if we think about this from the perspective of
the United States economy and what you said about immigration
and the uncertainty around the ten million plus undocumented workers
or eight million, however, whatever number we're using to measure
this difficult to measure workforce here in the US, is
the net effect of President Trump's immigration policy inflationary or disinflationary.
Speaker 4 (05:34):
The net effect on the workforces you much have. You
have a very tight workforce, and this is why businesses
are reluctant to fire. That means that wages and this
I think is a good thing, are probably firmer you
do not have. Though on the fiscal side, some of
these big government directed programs like the American Rescue Act,
(05:57):
Inflation Reduction Act, infrastructure, and Chipsack. You know that that
spigot of government directed spending has been stood down. It's
probably been replaced though by more stimulus, tax on overtimes,
tax on tips, UH, accelerated depreciation, and others. And I
(06:17):
think the net effect of what's going on over the horizon.
That may, in fact, when we're looking back a year
from now, may say that the overall trend has been disinflationary.
The tariffs have basically interrupted that, but only for a
period of time, and we're returning to a disinflationary chen.
But but I'm not sure yet. And that's what I'd
(06:40):
be trying to figure out, and I think that's what
the FED participants are trying to figure.
Speaker 3 (06:44):
Out right now.
Speaker 2 (06:44):
What is the biggest risk of the US economy right now?
Is it the tariffs and the and the deals that
are being worked out.
Speaker 4 (06:52):
Uh, I would say the following, Uh, We're we're gonna
We're gonna go into twenty twenty six with some additional
stimulus coming from the bill that was just passed. We've
got a very tight labor force. I think a risk
is most businesses I talk to are struggling to find workers,
(07:14):
particularly in the service sector. I think there may have
to be a look at increasing legal immigration and or
clarifying the status of these millions of undocumented immigrants because
businesses are telling me they're struggling to find workers. And
then yes, on the tariffs. If we're in the load
to mid teens, I think the risk of being able
(07:37):
to manage this is lower. I think if they're mid
to high teens or twenty percent, I think it will
take longer. And I'm still, though overall optimistic about next year.
The biggest concern I have for the US economy is
the deficit. We're now net debt to GDP over one
hundred percent. We're going to run this year as high
(07:59):
as a seven percent and a GDP deficit, although we'll
have to see, and I still think our ability to
sell long duration treasuries is still our biggest challenge, and
that's the biggest thing I'm concerned about.
Speaker 2 (08:11):
We are, of course talking with Rob Kaplan and vice
chairman of our Goldmnzak's former president and CEO of the
Federal Reserve Bank of Dallas, joining us from the Bloomberg
News bureau in Dallas. Hey, Rob, one thing I wanted
to ask you. Former Treasury in White House National Economic
Council Chief Larry Summers said on Bloomberg Television's Wall Street
Week with David Weston that he backed Treasury Secretary Scott
(08:32):
Besson's questioning of the fed's non monetary policy activities and
saying that there were some areas that are distinct from
the broader issue of central bank independence. I think it's
safe to say that even some that really fiercely defend
FED independence say it is a good idea to review.
Do you think the FED is overreached in some areas.
Speaker 4 (08:55):
I think there's two or three areas that are healthy
to look at. One, the FED has very aggressively used
its balance sheet, increased its balance sheet QI in the last.
Speaker 3 (09:08):
Number of years.
Speaker 4 (09:09):
I think there's an argument, and it's worth a debate.
Maybe the bar should be higher to roll out the
balance sheet in the midst of a downturn, emergency powers gs.
Maybe a higher bar for using that balance sheet because
it has a distorting effect on the treasury market and
financial markets. I think some of the changes they're being
(09:30):
made now to do a revamp of bank regulation, I
think are constructive and I think those are good moves.
And then to the points that have been made, I
think it's always a good idea to take a look
at the FED. How can we operate better? There's twelve
reserve banks, there's a big board of governors. Are there
operations that could be integrated? Could there be more efficiencies
(09:54):
created to make it more economical. Sure, there are opportunities
there and kind of review, though, is healthy and constructive
and I think should be expected, and I think it
is a positive thing for the FED.
Speaker 2 (10:08):
Rob forgive me for going back to kind of where
we started, and I think about man, I would be
super rich and living probably on Anguilla if I had
a buff for every time I said we were living
in unusual and times. But watching yesterday, Tim's been doing
this a long time. I've been doing this a long time.
To see a president with a FED share touring the
(10:29):
Federal Reserve, I think it's fair to say that was
super unusual.
Speaker 1 (10:34):
That has happened in two decades.
Speaker 2 (10:35):
So tell me someone who understands the FED the importance
of FED independence. You know, your conversations are the things
you were being asked around that, and what you think
is the productive takeaway from seeing that? Or were you
as shocked as kind of we all were.
Speaker 4 (10:53):
Yeah, well, I thought I thought Jpalll handled it very
well and I really think that as a leader of
the FED, and I would guess what they're saying inside
the FED. Please screen this out. Let's focus on the
job at hand. We've got a big job to do.
The job is not finished. Let's make sure we're focused
(11:16):
on the July meeting, the September meeting, our role in
bank supervision, and all the other.
Speaker 3 (11:23):
Community activities we do.
Speaker 4 (11:24):
That has got to be the overwhelming focus to me,
watching the events of yesterday, it reminds me.
Speaker 3 (11:34):
Back to what I said earlier.
Speaker 4 (11:36):
We are much more highly leveraged than we were pre COVID,
whether we like it or not. Now it's spurred economic
growth in the last three or four years, but some
of that was due to excess fiscal spending. I do
think the big looming issue for the country, and I'm
optimistic generally, we are going to have to find ways
(11:57):
to moderate our debt growth, to be aware of the
fact we're running historically high deficit at a time of
full employment. We tend to run big deficits at when
we have high unemployment, not low unemployment. So this sensitivity
to the cost of everything, I think that part of it,
(12:17):
I think is a constructive development, and we're going to
have to do more to find ways to de leverage
and moderate idead growth for the good of our kids
and our grandkids and to have a healthier economy.
Speaker 3 (12:28):
Do you think fed Shair J.
Speaker 1 (12:29):
Powell concludes his term in May twenty twenty six as
Chair of the Federal Reserve and then serves until January
twenty twenty eight on the Board of Governors.
Speaker 4 (12:39):
I'll leave it to Jay to talk about what he
does after he's done being FED Shair. I would guess
I believe strongly he will finish out his term as chair.
It wouldn't surprise me if he made the decision then
to step down at that time.
Speaker 3 (12:55):
But he'll make that decision.
Speaker 4 (12:57):
But I'd be optimistic that he will finish out his
term is chair.
Speaker 2 (13:03):
Do you think wait, I got to just add because
Professor Judge asked this, you know when the President might
take any more steps to put more pressure on FED
Chier J.
Speaker 3 (13:11):
Powell.
Speaker 2 (13:12):
Do you think it's just going to be the same
drum beat or do you think you could take it
even further?
Speaker 4 (13:16):
So listen, I will say this, The sequence of events
over the last several months have meant that the next
FED chair will have a onus on him or her
to demonstrate that they are divorced from political pressure and
political considerations. Very critical to the leadership of the FED
(13:38):
that they demonstrate that, and I think it's critical to
people in the economy and the financial markets, not just
here but around the world, that that person demonstrate that.
Speaker 3 (13:47):
And I think this just.
Speaker 4 (13:50):
Increases the emphasis on their need to demonstrate that, and
I'm hopeful they will.
Speaker 2 (13:55):
All Right, don't tell anybody, Rob but I know we're
not supposed to have favorite interviews of the week, but
this was definitely a fave. Robert Kaplan, have a great weekend.
He is former president and CEO of the Federal Warzer
Bank of Dallas, and of course vice chairman at Goldman Sachs.
Joining us from Dallas
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:07):
Delighted to have with us Robert Kaplan. He's former president
and CEO of the Federal Reserve Bank of Dallas, vice
chairman currently of Goldman Sachs, and he joins us from
the news the Bloomberg News Bureau in Dallas. Robert is
great to have you here with us.
Speaker 3 (00:21):
How are you great to see you? Great to see
it doing well?
Speaker 2 (00:24):
All right, So I want to follow off of what
we heard from Professor Judge. She made some really good points.
I mean, first of all, what do you make of
the back and forth between the President and Fed jer J.
Speaker 3 (00:35):
Powell?
Speaker 2 (00:35):
Not really between the two, but really coming from mostly
the White House.
Speaker 4 (00:40):
So I'm going to talk to you about it as
if I were in my former seat at the FED,
and I would tell you I would be aware of it,
but I would be striving to make sure it does
not enter into my thinking at all. And I think
for most of the folks at the FED and around
the FMC table, they're very focused as I would be,
(01:02):
on trying to make the right decision in July and
then in September, and I would basically expect them to
extend humanly possible screen out some of the activities going
on externally.
Speaker 1 (01:16):
How do you do that? I mean, this is a
psychological question as much as it is a question about
data and the FEDS dual mandate. But how do you
drown out the noise when it seems to be coming
at least in our world almost twenty four to seven.
Speaker 4 (01:29):
So the way you drown out the noise, I would say,
is the task of figuring out right now with some
of these cross currents, we have the task of figuring
out what's the right way to administer monetary policy.
Speaker 3 (01:45):
That's consuming enough.
Speaker 4 (01:47):
And I think there's a real ethic and culture at
the FED and around the table to divorce your decisions
from political pressure or political considerations. That's really firmly ingrained.
And I think it's also between colleagues. It's self reinforcing.
You reinforce it with each other. I think the current
(02:10):
situation which I can get into is complicated enough that
would be consuming all of my attention, and I would
be having my team very focused on how to how
to weigh these trade offs well.
Speaker 2 (02:21):
And the President continues to say Rob that you know,
Vet jo Jpal is going to do the right thing.
You look at the economy. You do so for you
know your team over at Goldman Sachs and some of
the clients. How do you see the economy? What is
the right thing in terms of monetary policy right now
in your view?
Speaker 4 (02:37):
So here's what I'm seeing in the economy, and I
spend bulk of my time with clients across our divisions. Globally,
US economy is solid, but I would say growth is sluggish.
And what do I mean by sluggish? We expect GDP
growth this year, if you know, one in a fraction,
(03:00):
not a recession, but sluggish. The labor force is tight,
but the reason it's so tight, it's that businesses are
not hiring very aggressively, but they're also not firing. And
we've got a lack of immigration. We've got a real
uncertainty with ten million plus undocumented immigrants that are in
(03:25):
the workforce, so the unemployment rates likely to stay sticky.
In addition, the macro elements are set. You've got enormous
global overcapacity in goods, driven heavily by China over capacity.
We've got an AI artificial intelligence boom, which should be disinflationary,
(03:46):
and the counter to this is we've got this tariff
situation going on, which still isn't yet resolved.
Speaker 3 (03:53):
But I would say the following.
Speaker 4 (03:55):
The range of outcomes for tariffs in April were very
wide narrow down. They may be as low as low
to mid teens, they may be as high as high
teens the low twenties. That's allowed businesses to get a
pretty good grip on what their strategies will be, how
much they want to take from suppliers in negotiations, how
(04:15):
much has to come out of margin, how much will
go in price, and so the thing I'd be struggling
with at the FED is, in this disinflationary context, how
much will these tariffs lead to more persistent price pressures
or are they more likely to be a one time
(04:37):
price issue cost issue which then over the horizon will
get absorbed and we will return back to a more
disinflationary environment, which I would argue is where we are
predominantly globally outside the United States. And I'm not ready
to conclude that it's time to act in July, but
I'd be getting my team ready to be prepared potentially
(04:59):
to take action in the September meeting.
Speaker 1 (05:02):
In the United States. Okay, potentially take action in the
September meeting. So it's a ways away, but not really
a ways away, just after Jackson Hole in August.
Speaker 3 (05:11):
Right.
Speaker 1 (05:11):
So, if we think about this from the perspective of
the United States economy and what you said about immigration
and the uncertainty around the ten million plus undocumented workers
or eight million, however, whatever number we're using to measure
this difficult to measure workforce here in the US, is
the net effect of President Trump's immigration policy inflationary or disinflationary.
Speaker 4 (05:34):
The net effect on the workforces you much have. You
have a very tight workforce, and this is why businesses
are reluctant to fire. That means that wages and this
I think is a good thing, are probably firmer you
do not have. Though on the fiscal side, some of
these big government directed programs like the American Rescue Act,
(05:57):
Inflation Reduction Act, infrastructure, and Chipsack. You know that that
spigot of government directed spending has been stood down. It's
probably been replaced though by more stimulus, tax on overtimes,
tax on tips, UH, accelerated depreciation, and others. And I
(06:17):
think the net effect of what's going on over the horizon.
That may, in fact, when we're looking back a year
from now, may say that the overall trend has been disinflationary.
The tariffs have basically interrupted that, but only for a
period of time, and we're returning to a disinflationary chen.
But but I'm not sure yet. And that's what I'd
(06:40):
be trying to figure out, and I think that's what
the FED participants are trying to figure.
Speaker 3 (06:44):
Out right now.
Speaker 2 (06:44):
What is the biggest risk of the US economy right now?
Is it the tariffs and the and the deals that
are being worked out.
Speaker 4 (06:52):
Uh, I would say the following, Uh, We're we're gonna
We're gonna go into twenty twenty six with some additional
stimulus coming from the bill that was just passed. We've
got a very tight labor force. I think a risk
is most businesses I talk to are struggling to find workers,
(07:14):
particularly in the service sector. I think there may have
to be a look at increasing legal immigration and or
clarifying the status of these millions of undocumented immigrants because
businesses are telling me they're struggling to find workers. And
then yes, on the tariffs. If we're in the load
to mid teens, I think the risk of being able
(07:37):
to manage this is lower. I think if they're mid
to high teens or twenty percent, I think it will
take longer. And I'm still, though overall optimistic about next year.
The biggest concern I have for the US economy is
the deficit. We're now net debt to GDP over one
hundred percent. We're going to run this year as high
(07:59):
as a seven percent and a GDP deficit, although we'll
have to see, and I still think our ability to
sell long duration treasuries is still our biggest challenge, and
that's the biggest thing I'm concerned about.
Speaker 2 (08:11):
We are, of course talking with Rob Kaplan and vice
chairman of our Goldmnzak's former president and CEO of the
Federal Reserve Bank of Dallas, joining us from the Bloomberg
News bureau in Dallas. Hey, Rob, one thing I wanted
to ask you. Former Treasury in White House National Economic
Council Chief Larry Summers said on Bloomberg Television's Wall Street
Week with David Weston that he backed Treasury Secretary Scott
(08:32):
Besson's questioning of the fed's non monetary policy activities and
saying that there were some areas that are distinct from
the broader issue of central bank independence. I think it's
safe to say that even some that really fiercely defend
FED independence say it is a good idea to review.
Do you think the FED is overreached in some areas.
Speaker 4 (08:55):
I think there's two or three areas that are healthy
to look at. One, the FED has very aggressively used
its balance sheet, increased its balance sheet QI in the last.
Speaker 3 (09:08):
Number of years.
Speaker 4 (09:09):
I think there's an argument, and it's worth a debate.
Maybe the bar should be higher to roll out the
balance sheet in the midst of a downturn, emergency powers gs.
Maybe a higher bar for using that balance sheet because
it has a distorting effect on the treasury market and
financial markets. I think some of the changes they're being
(09:30):
made now to do a revamp of bank regulation, I
think are constructive and I think those are good moves.
And then to the points that have been made, I
think it's always a good idea to take a look
at the FED. How can we operate better? There's twelve
reserve banks, there's a big board of governors. Are there
operations that could be integrated? Could there be more efficiencies
(09:54):
created to make it more economical. Sure, there are opportunities
there and kind of review, though, is healthy and constructive
and I think should be expected, and I think it
is a positive thing for the FED.
Speaker 2 (10:08):
Rob forgive me for going back to kind of where
we started, and I think about man, I would be
super rich and living probably on Anguilla if I had
a buff for every time I said we were living
in unusual and times. But watching yesterday, Tim's been doing
this a long time. I've been doing this a long time.
To see a president with a FED share touring the
(10:29):
Federal Reserve, I think it's fair to say that was
super unusual.
Speaker 1 (10:34):
That has happened in two decades.
Speaker 2 (10:35):
So tell me someone who understands the FED the importance
of FED independence. You know, your conversations are the things
you were being asked around that, and what you think
is the productive takeaway from seeing that? Or were you
as shocked as kind of we all were.
Speaker 4 (10:53):
Yeah, well, I thought I thought Jpalll handled it very
well and I really think that as a leader of
the FED, and I would guess what they're saying inside
the FED. Please screen this out. Let's focus on the
job at hand. We've got a big job to do.
The job is not finished. Let's make sure we're focused
(11:16):
on the July meeting, the September meeting, our role in
bank supervision, and all the other.
Speaker 3 (11:23):
Community activities we do.
Speaker 4 (11:24):
That has got to be the overwhelming focus to me,
watching the events of yesterday, it reminds me.
Speaker 3 (11:34):
Back to what I said earlier.
Speaker 4 (11:36):
We are much more highly leveraged than we were pre COVID,
whether we like it or not. Now it's spurred economic
growth in the last three or four years, but some
of that was due to excess fiscal spending. I do
think the big looming issue for the country, and I'm
optimistic generally, we are going to have to find ways
(11:57):
to moderate our debt growth, to be aware of the
fact we're running historically high deficit at a time of
full employment. We tend to run big deficits at when
we have high unemployment, not low unemployment. So this sensitivity
to the cost of everything, I think that part of it,
(12:17):
I think is a constructive development, and we're going to
have to do more to find ways to de leverage
and moderate idead growth for the good of our kids
and our grandkids and to have a healthier economy.
Speaker 3 (12:28):
Do you think fed Shair J.
Speaker 1 (12:29):
Powell concludes his term in May twenty twenty six as
Chair of the Federal Reserve and then serves until January
twenty twenty eight on the Board of Governors.
Speaker 4 (12:39):
I'll leave it to Jay to talk about what he
does after he's done being FED Shair. I would guess
I believe strongly he will finish out his term as chair.
It wouldn't surprise me if he made the decision then
to step down at that time.
Speaker 3 (12:55):
But he'll make that decision.
Speaker 4 (12:57):
But I'd be optimistic that he will finish out his
term is chair.
Speaker 2 (13:03):
Do you think wait, I got to just add because
Professor Judge asked this, you know when the President might
take any more steps to put more pressure on FED
Chier J.
Speaker 3 (13:11):
Powell.
Speaker 2 (13:12):
Do you think it's just going to be the same
drum beat or do you think you could take it
even further?
Speaker 4 (13:16):
So listen, I will say this, The sequence of events
over the last several months have meant that the next
FED chair will have a onus on him or her
to demonstrate that they are divorced from political pressure and
political considerations. Very critical to the leadership of the FED
(13:38):
that they demonstrate that, and I think it's critical to
people in the economy and the financial markets, not just
here but around the world, that that person demonstrate that.
Speaker 3 (13:47):
And I think this just.
Speaker 4 (13:50):
Increases the emphasis on their need to demonstrate that, and
I'm hopeful they will.
Speaker 2 (13:55):
All Right, don't tell anybody, Rob but I know we're
not supposed to have favorite interviews of the week, but
this was definitely a fave. Robert Kaplan, have a great weekend.
He is former president and CEO of the Federal Warzer
Bank of Dallas, and of course vice chairman at Goldman Sachs.
Joining us from Dallas
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