Bloomberg Audio Studios, podcasts, radio news. We always like to start the day and start the week with someone with broad perspective. Right now joining us is Robert Kaplan. We're thrilled that he could join us today. Forever associated with his Goldman Sachs, but his public service noted to the nation is the president of the Fetterzer Bank of Dallas, and just a really broad view of where we are. Thrilled Roberts you would begin our Monday with us, where
are we right now? In a broad sense? Can our institutions survive this onslaught of uncertainty?
They can survive. But we've got a number of weeks more to go to get through this fog. And in particular, you know, there's three big changes going on. There's the government spending cuts, there's the changes in immigration policy, which are having even a bigger effect than are being discussed. And on tariffs, the thing that we're just not sure about is the Trump administration intending to negotiate tariffs down
to zero, ten percent, twenty percent. I noticed over the weekend they said that they want to settle out at twenty to fifty percent, and those are dramatically different outcomes.
Your charm.
Robert Kaplan among the people, think that everybody within the Caplan school comes from six zip codes somewhere in the vicinity of Boston or New York or Washington. You are a brethren of Kansas, out of the University of Kansas. This makes you different. You understand the span of America. I'm looking at a statistic where Kansas has two point three billion worth of product in aerospace to the rest of the world. How would threat is Kansas from this upset in Washington.
Well, it is threatened, and it's got a lot of farmers, big agricultural economy, and our farmers rely very heavily on foreign markets China for an example, And so there's a lot of concern in Kansas. And also there are a lot of small businesses and bigger businesses I'm seeing are having They don't love the uncertainty, but they have a lot of levers to manage. Small businesses are telling me that they're at risk if this goes on for a
number of more months. There are many of them are thinking that they won't stay in business.
Paul, over the weekend, buried in the headlines, I know you weren't paying attention at least it wasn't paying attention. China canceled twelve thousand metric tons of United States pork ship bits.
That's a lot of bacon.
That's a lot of bacon there, and I think we're going to see more of that, Robert. When you have discussions with your clients, Robert, with your bankers at Goldman Sachs, is discussion about a recession is coming or whether it's coming, and whether we can get through this. What's the real economic fallout that you're hearing from your clients and bankers.
I think people see that in certain sectors there's already slowing, so travel leisure, there's less tourism that we know, shipping we know is weak, and you were talking about earlier, and in other parts the sentiment is very negative, but we don't see a severe decline. I think most people
I talk to are expecting further slowing. It's not a fada complete, but I think they're worried that there's been pre ordering, it's artificially bolster GDP recently, and that there's a little bit of a cliff coming and more substantial decline in growth. But they don't know, but they're preparing for a more severe slowing.
In that regard, Robert, what do you think that the Federal Reserve can do should do?
I think they should be making.
Clear, as I think Jpal did a couple of weeks ago, that they're still very focused on fighting inflation. You don't want inflation expectations to get de anchored unanchored here, and that's what he was trying to do. And in otherwise, don't make predictions. Don't talk about June or not June because they don't know. We don't even know what the tariff policies are. Ultimately, keep your options open and don't try to be a prognosticator, be a risk manager.
Formerly with the Dallas Fed and now at Goloben Sex, Robert keppan with us to start as strong this morning and this extended conversation. I mean, I guess we could try it out, Robert Kepp when the Fisher equation the Fisher hypothesis rather of central bank theory. But it does come down to lagging or x post or after the fact. I mean, that's the only fallback the central bank has. They have to wait and see the labor market crack before they act.
Right, well, they need to see more evidence in the hard data of slowing. And also they don't know and we don't know this cost shock we're about to get.
How inflation area is it going to be? The irony is up.
Until January twentieth, goods were disinflating globally. There's a lot of global overcapacity for manufacturing, and the service sector was where the inflation issue is. Now it's changing, and so the Fed's going to have to see more evidence.
In fairness to them, it's hard to.
Make policy forecasts or judgments when you don't know yet what the policies are, and they don't.
I mean, Paul, should we do a chart on Bloomberg Radio?
Now that works?
I think a chart works with Robert Kappain and you know where I'm going with this, Robert Kapin, I'm going to the ten.
Year real yield.
We are in between e within the dispersion, folks, and the answer is at one nine.
Percent, Paul.
It really begins to show this economic slow down down at one point eight zero. So we are distant from that identifying.
Of a slowing Yeah, we're certainly seeing a GDP forecast on Wall Street coming down. Robert, when you talk to your corporate clients at Goldman Sachs, what are they doing about some of their longer term plans, whether it's long term capbecks, whether.
It's M and A.
Are they hitting the pause button or are they trying to move forward?
They're mainly hitting the pause buttons. They're not canceling plans, but they're pausing them. And the other thing they're doing is and again this these tariffs have come very abrupt. So many CEOs have told me, listen, I had six to twelve months. I couldn't sell, I wouldn't solve this, but I could make moves. But this is happening now, and so they're re looking at their plans for supply
chains and logistics. And on the investing side, we are seeing people who started the year wanting to overallocate to the dollar are now saying, yeah, maybe we're overallocated to the dollar. They're gone, they've done a one eighty, and they're starting to look at broader alternatives away from the dollar.
That doesn't mean that that's what they're going to be doing six months from now, but there again, they're concerned and it's more than tariffs that they don't understand the US economy and US institutional framework as well as they thought they did, and that's giving them some pause.
Should we go to the Dallas FED with Robert keptall? I think we can do that, Robert Kappan. As you know, each FED has a its own characteristics, its own past. The Robert McTeer, Robert Kaplan passed of the Dallas FED, but it's on the border as well. Not speaking for the Dallas FED, I want to make clear that mister doctor Kaplan doesn't do that, folks, But Robert Kaplan, to be clear here, how do you perceive our tension with Mexico as you look at all the research of your Dallas FED.
Yeah.
So, Texas, as you note, is the largest exporting state in the country. The relationship between Texas and Mexico in terms of logistics and supply chain arrangements as well as people by the way from Mexico coming across the border at a shop in Texas, that those relationships are essential. And this is why for many companies domicile not just in Texas but in the country, the being able to send goods back and forth across the order with Mexico as well as Canada has been essential.
To domiciling in.
Texas and in the United States and making sure we're globally competitive. And people don't realize that if you want to encourage reshoring to the US and you want to take share from Asia, you would want to preserve those logistics and the chain arrangements.
So, with all your experience, Robert Kaplan, how does the how do the people around the president, including a Secretary Treasury, allow him to save face and walk back from his mckinleyite tariffs.
So I think the nub of the issue right now is it's unclear how much cost savings we're getting out of doge okay, and I.
Think that's part of this discussion.
And I think they're still a little bit wetted that we're going to get the offset. We're going to get revenue tariffs, and that'll help us in the de leveraging, it'll.
Help us justify bigger tax cut.
And I think all the studies I've looked at have shown that every dollar of tariff revenue you get, you give it back portion of it in terms of lower growth and damaging groups. But that's the key to I think why they're clinging to these tariff tariffs. At higher levels, not at zero, and I think they may be better served letting go a little bit on that concept.
In the zeitgeist this morning, Paul Sweeney is a bar shirt. I'm going to give credit to the Tax Foundation showing the tencen see revenue build from tariffs versus the ginormous revenue that comes in from income taxas right, it's a sobering charge.
It is Robert as former president of the Dallas Fed, you have an appreciation for immigration, legal and illegal, being an part of the country here. What do you believe the impact of this reduction of illegal immigration coming across the border will due to the US labor market because I'm not sure really folks are clear on how that works.
So one of the things I would say, over the last four years and during the Trump administration, we had in excess of a million workers a year immigrants who came in and joined the workforce. It appears now this year that could be in the low hundreds of thousands. We can't tell yet. So that's going to slow workforce growth.
That slows GDP, it tightens the workforce. But the bigger thing going on that I would call out, there are millions of undocumented immigrants in this country in the workforce who are unsure of their status, and I'm hearing from their employers that some number of them are not coming into work and they're certainly not shopping and because they're concerned, and so that is making the labor force a minute at least in the service sector tighter, and it will
slow GDP growth and it's probably affecting consumer spending.
Robert Kaplan, generous of you to be with us this morning, Vice Chairman goldmin six, thank you so much, and again his public service at the Dallas Fed