Goldman Vice Chairman and Former Fed Official Kaplan on Rate-Cut Dilemma
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What challenges is the Federal Reserve facing?
Welcome to WSJ's Take on the Week. I'm Gunjan Banerjee.
And I'm Telus Demos.
We are facing one of the most uncertain economic moments in recent history, and the Federal Reserve is at a crossroads. Will it cut interest rates this year? And how are central bankers thinking about the intense volatility in financial markets? We have the perfect person to chat with us about this today. We have Rob Kaplan, who is vice chairman at Goldman Sachs. He previously served as president and CEO of the Federal Reserve Bank of Dallas. Rob, thank you for joining us.
Good to be here. Thanks for having me.
What factors influence the Fed's interest rate decisions?
So we have a really big Fed meeting coming up. It feels like more than ever, the Fed and investors are just navigating a really, really uncertain time. How are you thinking about this moment in light of tariffs, the economy and everything else going on right now?
So what you're seeing is a shift in that for the last couple of years, I think a lot of the focus was on the Fed. And first they're tightening and then they're beginning to ease. We're now shifting more towards structural drivers in the U.S. economy, which the Fed doesn't drive. The executive branch and Congress drive the structural drivers. And those include an effort to cut government spending, reduce deficits, regulatory review in every industry, an effort to restructure the energy ecosystem to lower prices at the pump. and for low-moderate-income families. We're seeing a dramatic change in immigration and immigration policy, which is reducing workforce growth. And then the last big one is obviously tariffs, which we could spend the whole time talking about. But those are five very significant changes. The Fed is most comfortable when there's a clear outlook, and then they can adjust policy to those outlook. When you've got this many structural changes and some of them are still unclear, tariffs is a good example.
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.
And on top of that, you might have an economy that's already slowing, as we saw in the data recently.
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.
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Chapters
8 chapters
1
What challenges is the Federal Reserve facing?
1:34–2:09
2
What factors influence the Fed's interest rate decisions?
2:09–6:48
3
What is stagflation and why is it a concern?
6:48–8:10
4
How do tariffs affect inflation and the economy?
8:10–11:43
5
When might the Fed consider cutting interest rates?
11:43–20:07
6
How do sentiment indicators impact Fed decisions?
20:07–21:26
7
Why is anchoring inflation expectations critical for the Fed?
21:26–23:04
8
What trends are seen in consumer behavior related to pricing?
23:04–31:50
Speakers
7 identifiedMore from WSJ What’s News
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