Goldman Sachs Vice Chair Rob Kaplan Talks Next Fed Chair

Summary

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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

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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.

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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.

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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)

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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

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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.

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Transcript

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[Robert Kaplan]

Bloomberg Audio Studios.

[Podcast Host]

Podcasts Radio News I'm very pleased to say. Joining us now is Robert Kaplan, Vice Chairman at Goldman Sachs. Previously, of course, served as the president of the Federal Reserve bank of Dallas. Robert, very nice to have you with us. Thank you so much for coming in. So let's talk about the here and now in the US Economy and what you see weakening in the labour market. Is it right that the, that the market that the Fed should focus on, on the weakness in the labor market.

[Robert Kaplan]

Right now, there's no that that labor market is weaker and very sluggish. There's three reasons why. One, tariffs, at least in the short run, are slowing growth in the United States and they're affecting small business disproportionately. And you saw in this recent job weakness, a lot of the weakness was in small business. That makes sense. Second, there, there's been constraints on labor force growth, which reduces supply. But also there's a multiplier effect. When jobs go unfilled, it creates other jobs have been created. You know, there's another half a job that would be created for every job goes unfilled. And the shutdown has been a headwind for growth. So it's not surprising you're seeing some weakness. The trick for the Fed is as you head into 26, we've got a few tailwinds that may come to the fore. Tax incentives, tax on tips, tax on overtime, accelerated depreciation, regulatory relief, getting more, getting further along. And then still the AI data center power boom, I think, is underway. So that's, that's why they're balancing what's the here and now versus the headwinds likely in 26.

[Podcast Host]

And of course, there's a lot of focus on who's going to lead the Fed and who is going to be leading those conversations about the balance between inflation risks and joblessness risks in the United States. What's your thinking on the extent to which the market is concerned about the person themselves? I mean, this is, in the end, setting policy as a group activity.

[Robert Kaplan]

Yeah.

[Podcast Host]

But the chair clearly has a big voice at the table. What should we know about the way these decisions are made and how much it matters?

[Robert Kaplan]

Who leads so The Fed is focused on full employment and meeting a 2% inflation target. The reason they're sticking with the 2% inflation target is 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 I think any of the candidates mentioned have the intellectual capability and leadership capability to balance those issues. But I think whoever's in the job, and I won't go through individual names, 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. And that's I think what the market wants to see.

[Podcast Host]

Yes. I mean how nervous are you about political pressure to get rates lower in the United States? Is this something that should preoccupy market participants?

[Robert Kaplan]

Well, it is natural for administrations to want lower rates. Lower rates mean higher real GDP growth, higher nominal growth. But that's why the Fed is a little bit has to be independent and when necessary push against that. So I think any of the candidates have the capability of doing it. And 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.

[Podcast Host]

If the White House, even if and if the Fed wants lower interest rates in the states and if that's what they deliver, if the market then worries about inflation, does that mean that that lower the lower rates the Fed sets don't necessarily get passed on to the real economy. So could lower rates actually be self defeating?

[Robert Kaplan]

So the Fed only controls the front end of the curve. And so what you've seen, the Fed has cut 150 basis points since September of 24. The 10 year has hardly budged. Okay. It's down just a touch and so the curve has gotten steeper. So yeah, the market sets rates along the curve and the further out the curve, the more their market determined. And so the Fed's got to be aware that has to have credibility for its actions.

[Podcast Host]

And are you concerned about overheating at all in the US economy around the theme is that you talked about how that there are going to be some tailwinds around fiscal stimulus in the states, tax cuts. Also the AI build out there is.

[Robert Kaplan]

Going to be a firming. We believe at Goldman Sachs we believe that in 26 GDP growth is likely to firm. I Think there's, there's clearly enormous infrastructure spending for AI data centers power. 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'll get to the point where we will think it's overdone, but we're in the early stage of downstream adoption. And so I think we see firming growth. I don't see an overheating. But when you have firming growth you got to be worried. Inflation is running 2 and 3/4 3%.

[Podcast Host]

Yes.

[Robert Kaplan]

And so the Fed just got to be very mindful of that.

[Podcast Host]

And at the coal face of the sort of news flow around corporate adoption of AI, we get drip fed little nuggets of information about these businesses adopting quickly here there's some pushback. What's your big picture expectation about how quickly this can change the productivity narrative for the US Economy?

[Robert Kaplan]

When we're sitting here talking five years from now, I would guess that you're going to see productivity growth in the United States and globally. But, but let's take the United States is that could be a half a percentage point. We believe higher corporate margins could be better. That's on the one hand. On the other hand, businesses are more likely to get disrupted. They've got to spend on AI in the short run. That may come out of margin. Over the long run. I think businesses who do it well are going to be more productive. So I think we're going to see benefits. The surprise is going to be which use cases work and which use cases we thought would work but don't. And how does it affect industry and how does it affect labor?

[Podcast Host]

Yes.

[Robert Kaplan]

And so we're, we're early in that workers are going to get disrupted out of functions, out of companies. They're going to have to move to other functions and companies. This is where early childhood literacy, secondary education, skills training and adaptability of the labor force is going to get more important. And, and, and successful countries will invest in that.

[Podcast Host]

So it does. So labor markets will need to adapt and policy. What should policymakers I suppose keep in mind when it comes to labor markets and how quickly we might see the, the effects of, of AI on, on redundancies.

[Robert Kaplan]

I think the thing about AI, unlike other technological, technological and other structural change is how fast it's going to happen. So policies need to be, makers need to be aware of. You're going to have mismatches, you're going to have lots of people looking for jobs. You know, computer programmers who used to have plentiful jobs. Now we'll need to find other types of work. But there's lots of open jobs also.

Window installers, automotive technicians, electricians. And we've got mismatches. I would guess in the next two or three years you'll see that continue. Those will get sold resolve with the passage of time.

But I think we're going to have to help people make the adjustment. So there's cyclical issues where lack of demand creates labor slowing and then these structural mismatches. I think we're going to see more structural mismatches maybe even if cyclically we're firming.

[Podcast Host]

And on that structural story, is it your sense then that the negatives kick in more quickly than the positives so that the job cuts come and then the productivity gains come later.

[Robert Kaplan]

I think human beings sometimes takes them a while to change, change their aspirations, change their job goals. And I think this is where we have to do a better job educating workers, helping them adjust, making that transition and but ise happening so fast that that the workforce may lag adopting and also worker mobility, geographic mobility is probably historically low right now. You know the house is situation, you have already owned your home, fixed rate mortgage. We're going to have to help people adjust.

[Podcast Host]

Okay, Robert, thank you very much. Thanks for joining us. Rob Kaplan, Vice chairman of Goldman Sachs and previously of course of the Dallas Fed. Our thanks to Rob for joining us. Very great, really great to get his perspective on the AI up and downsides for the US economy and the Fed conversation of course.

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