Rob Kaplan

I think the Fed has to wait until some of these decisions clarify. And the other reason to wait is we still have an inflation issue. And so the Fed has to be patient for this to clarify because they're still trying to make sure people know they're fighting inflation.

So the economy is reacting to these structural changes. We started the year, I think most economists might have called for two and a quarter, two and a half percent GDP growth. Those estimates have steadily declined. probabilities of recession have increased. What we're actually seeing in the economy in terms of the real data is shipping is down, travel is down, tourism is down.

So the economy is reacting to these structural changes. We started the year, I think most economists might have called for two and a quarter, two and a half percent GDP growth. Those estimates have steadily declined. probabilities of recession have increased. What we're actually seeing in the economy in terms of the real data is shipping is down, travel is down, tourism is down.

Most companies I talked to in the first quarter, business has been not great, but it's been solid. And even today, they haven't seen a substantial fall off, but they're expecting it. And that's where we are right now.

Most companies I talked to in the first quarter, business has been not great, but it's been solid. And even today, they haven't seen a substantial fall off, but they're expecting it. And that's where we are right now.

Stagflation means slower growth and stickier prices. So we obviously just got the actual GDP number for the first quarter, although it'll be subsequently revised, but was negative. Not surprising. It was a little disappointing to some. And you see economists slowing down their growth estimates for the year. So why are they doing that? Government spending cuts, slow growth.

Stagflation means slower growth and stickier prices. So we obviously just got the actual GDP number for the first quarter, although it'll be subsequently revised, but was negative. Not surprising. It was a little disappointing to some. And you see economists slowing down their growth estimates for the year. So why are they doing that? Government spending cuts, slow growth.

Regulatory reform should help productivity, would help growth, but it takes time. Immigration reduction, workforce growth reduction, slow growth. And tariffs, probably slow growth, but also create a cost push that might actually cause prices to be stickier. And that's what the Fed's trying to figure out.

Regulatory reform should help productivity, would help growth, but it takes time. Immigration reduction, workforce growth reduction, slow growth. And tariffs, probably slow growth, but also create a cost push that might actually cause prices to be stickier. And that's what the Fed's trying to figure out.

And so, yeah, that combination means slower growth and stickier prices, at least in this first phase. And that's why you hear people talking about stagflation.

And so, yeah, that combination means slower growth and stickier prices, at least in this first phase. And that's why you hear people talking about stagflation.

It'll react differently. So going in, I'll call it pre-January 20th, goods ironically were disinflating globally. OK, one of the reasons for that is dramatic overcapacity in China and global manufacturing overcapacity. The inflation issue was due to services, sticky rents and maybe sticky wages. And that was probably driven to some extent by excess government spending, excess demand, not supply.

It'll react differently. So going in, I'll call it pre-January 20th, goods ironically were disinflating globally. OK, one of the reasons for that is dramatic overcapacity in China and global manufacturing overcapacity. The inflation issue was due to services, sticky rents and maybe sticky wages. And that was probably driven to some extent by excess government spending, excess demand, not supply.

Now we're heading into this new set of policies and the Fed is adjusting its Tariffs are about goods. Well, we haven't had a goods problem. Well, we may now. And so they're trying to figure out, will increasing costs due to tariffs translate into higher prices? Now, the reason I say will they, it's not a certainty. You can negotiate with your suppliers.

Now we're heading into this new set of policies and the Fed is adjusting its Tariffs are about goods. Well, we haven't had a goods problem. Well, we may now. And so they're trying to figure out, will increasing costs due to tariffs translate into higher prices? Now, the reason I say will they, it's not a certainty. You can negotiate with your suppliers.

You can take some amount out of your margin if you're a company. You can increase prices. You may not increase prices all at once. And you don't know what the level of the tariffs are going to be, and it varies by country, and the jury's still out.

You can take some amount out of your margin if you're a company. You can increase prices. You may not increase prices all at once. And you don't know what the level of the tariffs are going to be, and it varies by country, and the jury's still out.

And so what they're struggling with is the inflation nexus has changed to a cost push issue on goods, and it's unclear how much demand destruction, i.e. slowing growth, might offset that cost push. You just don't know yet.

And so what they're struggling with is the inflation nexus has changed to a cost push issue on goods, and it's unclear how much demand destruction, i.e. slowing growth, might offset that cost push. You just don't know yet.

Yes.