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He is absolutely unique as a president, president, former president, governor, vice chairman and chairman of the FED, and that no one in the multiple years I've been covering it synthesized Wall Street business and economics like Robert Kaplan. He was at the Dallas FED with a real sense of the border political economics, the heritage of the Dallas Fed around Robert McTeer and the Georgia School, their research capabilities, and were thrilled he could join us this morning for an
extended conversation. It's been way too long, Robert. Let me cut to the chase. The definitive series, which Jerome Powell speaks of. Is the Dallas trim mean? You are expert on that with your research staff. Does the Dallas trim mean for Robert Kaplan? Does it indicate a vector of disinflation or a new worry back to the time of say Wayne Angel and a higher inflation rate.
It probably suggests inflation is a new word sticky, meaning it's kind of going sideways.
And we're not making improvement.
And I would guess that if prices edge up a little bit, it's going to be more supply side issues from here than demand side issues.
What I'm looking at, Robert Kaplan, is the ambiguity, the swirl, if you will, of American economics with our politics. Is the sum total of what our listeners and viewers understand on this Friday. Is it towards a depressed real GDP because of policy uncertainty.
Yeah. So there are five big structural changes going on.
That's a very unusual and just tick off. We're restructuring the way we do fiscal spending and it's going to have some jarring effect, but we're going to have less fiscal spending. If they succeed, that would tend to lower growth. We're going to do a regulatory review in every industry to try to produce more productivity growth That actually might be helpful. There's going to be an effort to control
the workforce. Obviously, no more people coming in across the border entering the workforce, and we're going to deport That tends to lower growth unless we have an effort to revitalize legal immigration. And then we're going to try to restructure the energy ecosystem in this country to lower costs.
That's probably helpful. And then the last thing is.
The tariffs, and the tariffs have a price effect, but I would guess these terraffs and the uncertainty with them on margin lower growth.
So you've got a bunch of.
Cross currents, and I would guess the net of it all is I would guess, yeah, growth is probably slowing a little bit right now, and the uncertainty as well as when you cut government spending and you reduce workforce growth or you reduce the growth of it, you know,
you limit you limit GDP growth. The effort is I don't know if that's that concerning, and that I think the effort of this administration is to try to create more organic, more private sector growth, less government led growth, so quote unquote healthier growth, but top line growth probably is going to be somewhat weaker, I would guess, so.
Robert, giving that backdrop in the five big structural changes that you just outlined, if I'm the Federal Reserve, do I just sit on the sidelines and kind of let it all play out because the market is kind of suggesting that the Fed's not going to do a lot this year.
Yeah, yeah, I think the right thing.
Yeah, the FED is quietly drifting state left, and that's Okay. The center stage is structural changes, executive branch changes away from the FED, and in a period like this, I think the wisest thing the FED could do, yes is be comfortable standing pat be careful about what they say, because I think commenting too definitively on how these structural changes are going to play out, it's too early to do it. Tariffs is a good example. We don't need to know what the tariffs are going to be. And
so yeah, I think the Fed will do less. I think that's fine, and I think Jay Palell's communication on that has been good recently, where he's made clear we're in no hurry.
And people should be prepared.
Their focus should be more on what's going on the executive branch.
And second comment I'd make, if.
There's a rate I'm focused on, I'm much more focused on the ten year treasury rate than i am the Fed funds rate.
Interesting. So, Robert, as we sit back here and we think about the economic backdrop.
Here, how do you view the consumer right here?
I mean, we've heard about and talked about and noticed in the data this K shaped economy.
How do you think about the consumer. There's two big groups.
It's confusing because there's two big groups, probably unlike maybe anything I've seen in my career. There's one group that's sixty five that's rough numbers, sixty five seventy million workers that make fifty five grand a year or less, and they are struggling to make ends meet. They've lost at least twenty five percent purchasing power. They don't tend to own financial assets. That group is spending, but they're watching every dollar they're going to McDonald's and they're agonizing over
even McDonald's trading down. That's sixty five to seventy million workers and consumers. There's another sixty five to seventy million consumers fifty five and older, own their home, have a fixed rate mortgage, half financial assets, and this recent period has been pretty good. Yes, there's infliction, but their financial appreciation their financial.
Assets is offset it.
And because their mortgage is fixed, they're really not that sensitive to higher rates, and they are spending much more aggressive, I guess, aggressively on services and other products. And that's why when you see corporate earnings reports, it's confusing.
Which of these two groups are you serving.
If you're serving that first group, you're likely seeing a much more challenging business. If you're serving the second group, you know, business looks better to you.
Robert Kaplan with us, of course, the vice chairman of Golden Sachs, with far More's relationship with the Dallas Fed, all sorts of academics through the year, his Harvard. We're thrill these with us, and we said good morning to you on YouTube in your home, at your office, all of gold and Sacks tuned in on YouTube. I mean, you know that's happening right now. Robert Capplin I got in the New Foreign Affairs last night. It's a very
strong issue, folks in these tumultuous times. Marianna Mazakata, who Robert Kaplan is not on the same page with the esteemed left economist, huge economic history student Marianna Mazacato with a wonderful essay.
Of where we need to go.
And Robert Caplan. I'm sure you don't agree with all that Professor Mazacata wrote up in the New Foreign Affairs. But the one thing she talked about, you're the most qualified person I know is the financialization that we've seen in the last ten, twenty, even thirty years, even before the Great financial crisis. How do you explain the financialization of the American culture and the winners you just described in the millions of losers out there that are a reality.
Well, so I'll put it. I'll put it this way. And you've heard me talk about this before. I listen, I work on an a firm now, and we run a business, and I've run other businesses. Human capital is the most important asset you have. And that's true for the United States, it's true for the state of Texas and so on. And early childhood literacy, secondary education, skills, training, a digital divide, allowing people to be more productive that is key to a growing middle class in building the economy.
And what we're seeing a little bit in the last number of years is a divergence financially between that I just mentioned.
Those two groups working people.
That don't take government money have probably been employed, done everything right their whole career, but they don't have a lot of savings. They may not own their home, and they're reading in the newspaper about another group of people out there who are rising by bounds in terms of their financial wealth and financial assets. And it seems like capitalism isn't quite working for them, and I think education is one of the vehicles to try to address this.
But one of the issues with decelerating workforce growth is education tends to be paid for at the state level and city level. If you're a growing city or state, you got the money to spend on getting affordable childcare, full day versus half day, pre K.
All these critical things.
But if you're in a state which is probably forty plus states whose populations are flat.
To down, you may not have the money.
And then philanthropy, which I'm actively involved in, can help pick up the slack. But but I think we should be focusing more on our human capital and a little less on financial er and Paul.
That's the common ground between Mazocato and Kaplin, no question about that. The individual education effort.
Robert, I know in your role as vice chairman of Goldman Sachs, who speak to CEOs around the world, what is their view of I don't know, the ability to take risk to maybe think about M and A as a growth scenario. Where are they in terms of how they feel about their business and their ability to take risk over the next couple of years.
Okay, So on the positive side, I think the prospect of a more balanced regulatory environment, more cost benefit analysis, more in their words, more sensible regulation. They're they're okay with tough regulation, but there has to be a rationale for it. I think they're excited about that. On the other hand, they're dealing with another They're dealing with the
Trey uncertainty. And if you're going to domicile more manufacturing, for example in the United States, you really need the corridor of Mexico and Canada for integrated supply.
Chains and logistics.
And when they see threat of tariffs on for example, Mexico, which they hope doesn't happen, which could undermine logistics and supply chains, it gives them pause and makes them want to just slow down a little bit and be more careful. And the other big thing is AI and technology. Now we've had technology innovation for years, but if you're a CEO right now, you've got to spend on AI in your business. You're not sure which use cases will work
and which won't, but you got to do it. And so I think you're going to see though a lot of merger activity by companies who feel that, boy, if we're going to take scheer in the years ahead. If we're going to grow in the years ahead, we're more likely to have to take share, and we're gonna have size and scale, and the ability to ford AI investment is more important than its ever and I think you're going to see a desire for many companies bigger to try to deal with that.
I gotta squeeze this in too important. There seems to be another threat happens every two, three, five years. It's not specific to mister Trump on FED independence. How does the institution of the Fed, mister Kaplan protect itself and stay independent versus the McChesney Martin challenges decades ago.
Yeah.
So the thing that's always challenging at the FED, and this isn't new, is regulatory supervisory policy at the FED is not politically independent and has not been independent. The tilt of it changes whether it's Obama to Trump, then back to Biden, now back to Trump. And that you'll see on setting the FED funds rate though, and the stance of monetary policy. I think it's critical of this country that stay political independent. Now the president can jawbone
and pressure and that's not new. May be more intense right now, and the FED will do its job and should to try to extent. They can't ignore that make decisions only. The biggest threat to the FED, I actually think sometimes is not from outside. Then you have to be careful as a governor or a president. Don't try to say things publicly you think might go over better, or worry about the pressure. Just do what you think
is right. And as long as they manage themselves, I think they'll go through this in an independent way.
Out of time, Robert Kaplin, next time you're on, We're doing a complete hour on do.
We need the docks?
Robert Kaplan of the Dallas Fed, always in forever and now vice chairman of his Goldman Sachs