Bloomberg Talks

Episode: Goldman Sachs Vice Chair Rob Kaplan Talks Next Fed Chair
Date: December 5, 2025
Guest: Rob Kaplan, Vice Chairman at Goldman Sachs, former President of the Federal Reserve Bank of Dallas
Host: Bloomberg

Episode Overview

This episode centers on the U.S. economy’s current state, the evolving labor market, and expectations around the next Federal Reserve Chair. Rob Kaplan shares insights on how the Fed will need to navigate economic headwinds and tailwinds into 2026, the nuanced political pressures surrounding interest rate decisions, and the profound impact of AI on productivity, labor disruption, and policy adaptation.

Key Discussion Points and Insights

1. The Current State of the U.S. Labor Market

• Sluggishness and Weakness: Kaplan identifies a weakened labor market, particularly affecting small businesses, and pinpoints three main reasons:
  • Tariffs slowing U.S. growth, with small businesses hit hardest.
  • Constraints on labor force growth limiting supply, exacerbated by a multiplier effect where every unfilled job results in additional jobs uncreated.
  • Ongoing effects of prior shutdowns continuing to hinder economic growth.

    “There’s three reasons why…tariffs…slowing growth…and they’re affecting small business disproportionately… constraints on labor force growth, which reduces supply… And the shutdown has been a headwind for growth.” – Rob Kaplan (00:56)

• Anticipated Tailwinds for 2026: Tax incentives, regulatory relief, and the continuing AI/data center power boom may drive firming growth in the near future.

  “Tax incentives, tax on tips, tax on overtime, accelerated depreciation, regulatory relief… the AI data center power boom, I think, is underway.” – Rob Kaplan (01:40)

2. Fed Leadership: Role and Market Concerns

• Decision-Making at the Fed: Kaplan explains that, while monetary policy is a group effort, the Chair’s independent, intellectual leadership remains vital—especially when seeking balance between employment and inflation goals.

  “They will need to show that while they may be from the administration or other sources, they're going to be intellectually willing to balance those issues and have that debate without regard to political pressure or political considerations.” – Rob Kaplan (02:32)

• The Importance of Fed Independence: Emphasis on the market’s desire to see the next Chair defend the Fed’s autonomy, particularly against political pressure for lower rates.

  “My advice to any candidate would be, if you're in the job, you want to reiterate that you're going to respect and try to preserve the independence of the Fed, at least on setting the fed funds rate.” – Rob Kaplan (03:48)

3. Interest Rates, Market Implications, and Inflation

• Limits of Fed Control: Kaplan elaborates that, despite Fed cuts, longer-term interest rates remain largely market-determined; credibility is key to effective policy.

  “The Fed has cut 150 basis points since September of ‘24. The 10 year has hardly budged. ... The curve has gotten steeper.” – Rob Kaplan (04:17)

• Threats of Overheating and Inflation: Goldman Sachs sees firming GDP growth in 2026, driven by infrastructure and AI adoption, but inflation remains a salient risk.

  “We believe that in ‘26 GDP growth is likely to firm. … When you have firming growth you got to be worried. Inflation is running 2 and 3/4–3%.” – Rob Kaplan (05:09, 05:39)

4. AI: Productivity, Disruption, and Labor Market Evolution

• AI’s Productivity Promise: Anticipates significant, yet complex, productivity gains over the next five years, possibly lifting productivity growth by 0.5 percentage points.

  “Five years from now… you're going to see productivity growth in the United States and globally… could be a half a percentage point [higher].” – Rob Kaplan (05:59)

• Short-Term Disruption: Upfront investments and disruptions (including job losses and margin pressure) will be followed by longer-term gains for adaptable businesses.

  “Businesses are more likely to get disrupted. They've got to spend on AI…that may come out of margin. Over the long run…more productive.” – Rob Kaplan (06:23)

• Impact on Workers: The shift will spur significant worker displacement and require investment in education and training.

  “Workers are going to get disrupted out of functions, out of companies. They’re going to have to move to other functions and companies. … Successful countries will invest in that.” – Rob Kaplan (06:42)

• Speed of Change: AI-driven changes will occur much faster than past industrial or technological shifts, intensifying mismatches between available jobs and worker skills.

  “The thing about AI, unlike other technological…changes is how fast it’s going to happen. So policies need to be…aware…you're going to have mismatches, you're going to have lots of people looking for jobs…” – Rob Kaplan (07:18)

5. Policy Recommendations and Structural Change

• Need for Policy Adaptation: Emphasizes education (early childhood and skills training), adaptability, and support for transitions as major pillars for successful navigation of the coming AI disruptions.

  “We have to do a better job educating workers, helping them adjust…making that transition.” – Rob Kaplan (08:21)

• Geographic Mobility as Constraint: Notes current low levels of worker mobility, partly due to housing lock-in effects (e.g., fixed-rate mortgages), which may slow adjustment.

  “Worker mobility, geographic mobility, is probably historically low right now…we’re going to have to help people adjust.” – Rob Kaplan (08:34)

• Sequencing of Effects: Job losses (negatives) will tend to precede productivity and economic gains (positives), making support during the transition crucial.

Memorable Quotes and Moments

• On balancing inflation and employment:

  “The Fed is focused on full employment and meeting a 2% inflation target. ... There’s still 85 million workers in the United States that make 50 or 55 grand a year who are struggling to make ends meet. So affordability is a big issue in the US.” – Rob Kaplan (02:32)

• On political pressure:

  “It is natural for administrations to want lower rates. … That’s why the Fed…has to be independent and…push against that.” – Rob Kaplan (03:32)

• On the AI economy:

  “We're in the early stages of AI adoption. I think there's a lot of worry, gee, is the AI infrastructure build overdone? I don't think it's overdone yet. … We're in the early stage of downstream adoption.” – Rob Kaplan (05:09)

Important Timestamps

• 00:56 – Kaplan outlines reasons behind labor market weakness
• 01:40 – Anticipated economic tailwinds for 2026
• 02:32 – The Fed’s mission and need for independence in leadership
• 03:32 – Pressure from administrations for lower rates, and maintaining Fed independence
• 04:17 – Fed’s influence on interest rates and market reactions
• 05:09 – Impact of AI and government policies on future GDP
• 05:59 – AI-driven productivity growth projections
• 06:42 – Importance of adaptability and education as labor disruptions loom
• 07:18 – The unprecedented speed of AI-related labor disruption
• 08:21 – Policy needs for workforce transitions and worker support
• 08:34 – Geographic mobility as a barrier to labor market adjustment

Conclusion

Rob Kaplan offers a comprehensive, candid examination of the challenges and opportunities facing the U.S. economy, drawing attention to labor market dynamics, the critical importance of Fed independence, and the far-reaching impact of AI. The episode is particularly valuable for its clear distinctions between cyclical and structural challenges, and for actionable insights around managing rapid economic change.