Robert Kaplan Talks Rate Hikes, Warsh at Jackson Hole

Summary

Bloomberg Talks: Robert Kaplan on Rate Hikes, Jackson Hole, and Economic Crosscurrents

Episode Date: August 13, 2026
Host: Bloomberg
Guest: Robert Kaplan, Goldman Sachs Vice Chair & former Dallas Fed President

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Main Theme & Purpose

This episode features a deep-dive conversation with Robert Kaplan, addressing the current economic landscape, inflation, Federal Reserve policy, and the challenges facing the bond market. Kaplan draws on his experience at the Dallas Fed to contextualize recent data, Federal Reserve decisions, and rising concerns over government deficits and evolving market structures.

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Key Discussion Points & Insights

1. Current State of the Economy and Labor Market

• AI-driven sectors strong, others sluggish:
  Kaplan observes that the sectors tied to AI infrastructure and adoption are robust, while others—housing, autos, low-to-moderate income consumer segments—are “okay, not great, somewhat sluggish.”

  • Quote:

    “What I hear from a number of companies who are more tied to housing, autos, the strength of the low moderate income consumer, I would say they describe the economy as okay, not great, somewhat sluggish.” (01:18)

• Labor market highlights:

  • Hiring is steady but not aggressive; no signs of major layoffs.
  • Companies are cautious with AI adoption regarding replacing jobs but are optimistic about eventual productivity gains.
  • Unitary labor costs are well-behaved; profits are taking a larger share of GDP compared to labor.
  • Quote:

    “You don't see aggressive hiring, but you don't see aggressive firing. And I still think we're several months or a year away from companies having enough confidence in the AI use cases to more aggressively use AI to replace people. But that is likely to happen. I think there'll be new jobs created also.” (01:36)

2. Federal Reserve’s Role and Rate Decisions

• Complex Crosscurrents:
  • Headline inflation is being pushed up by war in Iran and oil price spikes.
  • AI infrastructure build and tariffs are seen as inflationary; AI adoption and Chinese overcapacity are disinflationary.
• Assessment of Recent Fed Actions:
  • Kaplan supports July’s decision not to raise rates and criticizes the December rate cut as unnecessary.
  • Emphasizes importance of maintaining flexibility ahead of September’s decision and avoiding a rigid stance.
  • Quote:

    “I would not, not have raised rates in July. I think they made absolutely the right decision. I probably wouldn't have cut in December either. By the way, that last cut I would not have done.” (02:54)

3. Forward Guidance and the Fed’s Communication Challenge

• On Forward Guidance:
  • The term originally meant making specific commitments to future actions (e.g., Bernanke era).
  • Believes the approach was overused in 2020-21, and the Fed has learned to be more cautious.
  • Supports more explanation and transparency in future Fed press conferences but warns against boxing in decision-makers.
  • Quote:

    “The Fed's job is to be a risk manager, not a prognosticator... in the press conferences you ought to be able to explain why you made the decision you made and describe what the pros and cons and what the debate was. And I would probably like to see that more in future press conferences.” (04:33)

4. The Importance of the Chair’s Communication (Jackson Hole Speech)

• Speech as Framing Device:
  • Jackson Hole speeches have traditionally been philosophical, but due to current uncertainty and recent events, Kaplan urges for more direct explanation within the speech about recent decisions and economic context.
  • Suggests Chair Warsh might add a few sentences to clarify July’s rate decision for market participants.
  • Quote:

    “I might insert four sentences to explain why we made the decision in July that we made... just so we can get the framing and the July decision out there.” (06:44)

5. Treasury Auctions, Government Bond Market, and Deficits

• Structural Shift in Long-Term Bonds:
  • Concerned about lack of demand for long-term Treasuries, highlighting huge supply due to persistent, unmoderated government deficits.
  • Notes this is not just a US, but a global issue impacting long-term rates.
  • Market’s response to geopolitical risks is now less predictable; the usual “flight to quality” leading to bond rallies hasn’t materialized in recent years.
  • Quote:

    “The part that's that I'm struggling with more and I think the markets are struggling with the long end of the treasury curve... These deficits are not moderating and I think you're seeing a global backup, not just US global backup of the long end of the curve.” (07:58)

6. Outlook: Bonds vs. Stocks Next Year

• More bullish on stocks than bonds:
  • Strong earnings story across companies due to AI-driven productivity improvements.
  • Cautious on long-term bonds because of deficit concerns and dysfunction in the long end of the yield curve.
  • Quote:

    “There is a great earnings story that's unfolding... every company I talk with has got 12 to 15 use cases on [AI] adoption and is optimistic that they're going to find ways to improve margins, improve their business, improve productivity… I'm a little more nervous about whether we can get these deficits under control...” (09:27)

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Notable Quotes & Memorable Moments

• Robert Kaplan on the future of jobs and AI:

  “I still think we're several months or a year away from companies having enough confidence in the AI use cases to more aggressively use AI to replace people. But that is likely to happen. I think there'll be new jobs created also.” (01:36)

• On the Fed's approach:

  “The Fed's job is to be a risk manager, not a prognosticator.” (04:33)

• On structural changes in the bond market:

  “I think we have a new structural development and I think it's appropriate to be wrestling with that a little bit.” (08:58)

• On market outlook:

  “The S&P broad earnings story is alive and well for not just this year, but into the future. I'm a little more nervous about whether we can get these deficits under control and what's going to happen to the long end of the government bond curve.” (09:27)

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Timestamps for Key Segments

• [01:16] – Economic trends: AI sectors vs. traditional consumer sectors
• [02:26] – Fed’s current policy stance and crosscurrents in inflation
• [04:17] – Forward guidance: Evolution and current expectations
• [06:23] – Anticipation of Fed Chair’s Jackson Hole speech
• [07:46] – Treasury auctions and global long-term bond challenges
• [09:23] – Stocks vs. bonds outlook for the coming year

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Conclusion

Robert Kaplan’s insights provide a nuanced view of today’s economic complexities, highlighting the push and pull between inflationary and disinflationary forces, AI's gradual impact on jobs and productivity, the challenges of Fed communication during turbulent times, and growing structural issues in the bond market due to ballooning government deficits. While optimistic about corporate earnings and the potential of AI, he warns listeners to watch the deficits and long-term bond dynamics closely.

A must-listen episode for anyone seeking clarity on Fed policy, the future of rates, and the forces shaping both Wall Street and Main Street.

Transcript

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[Podcast Host/Interviewer]

Bloomberg Audio Studios Podcasts Radio News Begin this hour with stocks and bonds steady as CPI eases September Rate hike bets the next read on inflation out at 8:30am Eastern. With pie on deck, Goldman Sachs Vice chair and former Dallas Fed President Robert Kaplan joins us now for more. Rob, great to catch up with you. I want to start just by asking you your take on the economy and whether you were surprised by the relatively weak labor market report and then the very much in line yet confusing CPI report.

[Robert Kaplan]

Well, what I'm seeing in the economy, if it's associated with the AI infrastructure build or AI adoption, then it's strong. What I hear from a number of companies who are more tied to housing, autos, the strength of the low moderate income consumer, I would say they describe the economy as okay, not great, somewhat sluggish. And so in that regard the job market report kind of was in line with that. You don't see aggressive hiring, but you don't see aggressive firing. And I still think we're several months or a year away from companies having enough confidence in the AI use cases to more aggressively use AI to replace people. But that is likely to happen. I think there'll be new jobs created also. But but the point is unit labor costs are very well behaved and I think you and I have talked about this. The share of GDP going to profit is increasing, the share going to labor is more muted.

[Podcast Host/Interviewer]

What's the Fed's role given this backdrop right now?

[Robert Kaplan]

So you've got a lot of crosscurrents and and in fairness if we didn't have the war in Iran and the spike in oil prices which I think has raised headline inflation and bleeds into other items, my guess is we might not be even be talking about the prospect of a rate increase. And I think the Feds role here should be to try to understand these crosscurrents. The air infrastructure build is probably inflationary and you've got tariffs, labor constraints, oil Spike that, exacerbate that. On the other hand, AI adoption should ultimately be disinflationary. Chinese overcapacity should be disinflationary. And so it's not surprising to me that there's a lot of debate and they're trying to weave through this. I think what I would be doing in my former seat is I would not, not have raised rates in July. I think they made absolutely the right decision. I probably wouldn't have cut in December either. By the way, that last cut I would not have done. And I would be keeping an open mind between now and September. If I see meaningful improvement, I might be willing to kick the can and do nothing. But. But I want to. I want to take every bit of time between now and September before I make a judgment and avoid being rigid or predetermined in assessing this.

[Podcast Host/Interviewer]

People talk about the death of forward guidance. In part. Forward guidance has no role at a time where no one knows what's going to it. And it's very hard to predetermine what exactly could transpire. At the same time, reaction function does seem to be important. And from your vantage point, Rob, what would you be looking for to see that there is some sort of departure from this sort of mess, this muddle, to something that is more of a protracted, persistent inflation?

[Robert Kaplan]

So the term forward guidance gets used very broadly. What it started out as is, I'm going to make a current commitment today to a future action. Bernanke used it during the Great Recession. We, I think, overused it in the fall of 2020 and into 21 in committing to keep rates low until we reach full employment. I dissented on that. But I think the Fed has learned its lesson there and is, is much more reluctant to use that type of forward guidance. Now, what forward guidance seems to mean is I don't want to, I don't want to over predict. I agree with that too. And I always say the Fed's job is to be a risk manager, not a prognosticator. Having said all that, I do think in the press conferences you ought to be able to explain why you made the decision you made and describe what the pros and cons and what the debate was. And I would probably like to see that more in future press conferences. And I think that would illuminate the debate that's going on. And I think that would be useful. And I don't think that box is in the Fed at all.

[Podcast Host/Interviewer]

Do you think that there's a understanding of the reactionary function right now of this Federal Reserve.

[Robert Kaplan]

I think the understanding comes from individuals giving speeches about their reaction function. And I actually think in fairness to Chair Warshe's been gently counseling people on the committee. Don't, don't over predict what you're thinking, don't over explain it. You're going to box yourself. I actually think that's good advice. I think in the future, I think a little bit more explanation from the chair to help frame all this I think would be useful and I would, I would think and hope over the next several months you probably will get that.

[Podcast Host/Interviewer]

Do you think there's now more emphasis around his Jackson Hole speech given all of this?

[Robert Kaplan]

There's listen, anytime Fed Chair speaks, there's a lot of attention. The Jackson Hole speech historically is a little bit of a 500,000 foot philosophical speech. I think because of his confirmation hearings and what he's done in the first two press conferences you've already gotten a lot of philosophical views from Chair Warsh. So I think, I think in this speech I would give some of the philosophical. But I might do a little bit of, if it were me, and he may not follow this, I might insert four sentences to explain why we made the decision in July that we made. You know, we thought inflation readings were cooling. We're aware that this is not an excess demand situation. That's my view in the economy it's more of a supply driven, capex driven. And in that regard, and we have the special situation of the war and in that regard a majority of the voters decided on the committee decided it would be best to be patient but we'll remain vigilant. I would insert something like that just so we can get the framing and the July decision out there. But that's me otherwise I don't think it's going to get any more attention than any other Jackson Hole speech which always gets a lot of attention.

[Podcast Host/Interviewer]

Rob, how worried are you about today's 30 year auction coming out? The $25 billion of 30 year notes sold by the Treasury Department?

[Robert Kaplan]

Yes. So this is where you've got diverging pass. There's the debate at the Fed and this is the Fed funds rate ultimately need to be somewhat higher but if it needs to be higher, we're talking about over the next year to you know, 50, I don't know, 5075 basis points. We'll see. The Fed will figure it out. May not be pretty but they'll figure it out. The part that's that I'm struggling with more and I think the markets are struggling with the long end of the treasury curve. This is true of government bond curves. Globally, I think are struggling with something else. They're struggling with supply demand of treasuries, the size of these deficits. Are the deficits going to start moderating? In a solid economy you would normally think that deficits would moderate somewhat. These deficits are not moderating and I think you're seeing a global backup, not just US global backup of the long end of the curve. Some people have attributed to the Fed, but I actually don't think so. I think this is a different, this is a structural dynamic and normally when the economy weakens you would typically expect the long end of the treasury curve to rally or if there's a geopolitical event, you expect a flight to quality and a rally hasn't been acting as much that way, I would argue in the last year and a half, two years. I think we have a new structural development and I think I think it's appropriate to be wrestling with that a little bit.

[Podcast Host/Interviewer]

Just real quick here, Rob, what would you be more bullish on going into the next year? Bonds or stocks?

[Robert Kaplan]

Well, there is a great earn as you've been reporting and we're seeing it. There is a great earnings story that's unfolding and it's, it's the economy is yes, is being stimulated by AI infrastructure but, but broadly every company I talk with has got 12 to 15 use cases on adoption and is optimistic that they're going to find ways to improve margins, improve their business, improve productivity. And so I think the S and P broad earnings story is alive and well the for not just this year, but into the future. I'm a little more nervous about whether we can get these deficits under control and what's going to happen to the long end of the government bond curve.

[Podcast Host/Interviewer]

Rob, thank you so much for taking the time this morning. Always illuminating to speak with you. Goldman Sachs Vice Chair Robert Kaplan.

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