Odd Lots Podcast Summary

Episode: Rob Kaplan on the Fed, AI, and How Globalization Is Happening Without the US
Host(s): Joe Weisenthal, Tracy Alloway (Bloomberg)
Guest: Robert Kaplan (Former Dallas Fed President, now Vice Chairman at Goldman Sachs)
Date: September 12, 2025
Recorded Live at: Future Proof Conference, Huntington Beach

Overview

This live episode features a wide-ranging conversation with Robert Kaplan, focusing on the current trajectory of the Federal Reserve, the effects of the AI boom on the US economy and power grid, and the changing dynamics of globalization—especially as the US re-evaluates its place in the global economy. Drawing on his dual perspective from public service and high finance, Kaplan sheds light on policy dilemmas, economic cross-currents, and the real-world impacts of emerging technology.

Key Discussion Points & Insights

1. The Fed, Labor Market, and Rate Cuts

• Jobs Report & Rate Cut Odds

  • Recent jobs report (only 22,000 jobs added) was weaker than expected but not a total shock to the Fed.
    • “We’ve thought for the last few months that hiring was kind of, we said, at stall speed.” (Kaplan, [03:27])
  • Kaplan believes a 25 basis point cut is more likely than 50, due to persistent above-target inflation:
    • “I think 50 basis points is still unlikely…The reason 25 is more likely than 50 is the jobs market is not falling off a cliff. We didn’t get shrinkage and inflation is running at 2 and 3/4 to 3% above target.” (Kaplan, [02:25])

• Structural Factors Affecting Labor Market:

  • Weak labor supply due to reduced immigration, both legal and undocumented.
  • Fiscal stimulus, AI/data center boom, and tax incentives are still propping up economic activity despite soft hiring.

• Fed’s Policy Dilemma:

  • The stock market's optimism about AI-driven productivity hasn’t yet materialized in statistics, complicating the Fed's task.
    • “The stock market…is making that bet. It’s betting that productivity is going to improve, corporate earnings are going to get better. You’re not seeing it show up in the current economy.” (Kaplan, [06:44])
  • Kaplan orients expected Fed moves:
    • Cut in September; further cuts depend on labor stability and inflation progress.
      • “The goal…will be cut in September. Stay restrictive and if the labor market stays weak, keep going. If it stabilizes, then you have the option to hold off.” ([05:22])

2. The AI Data Center Boom—Promise and Pain Points

• Inflationary & Deflationary Influences:

  • AI boom not yet boosting measured productivity but is straining power infrastructure, raising costs.
    • “We are behind China in having enough power to fund the AI explosion…there is a crowding out and…I think people are afraid at some states…the leaders are afraid to take more data centers for fear it’s going to crowd out individuals.” (Kaplan, [08:22])

• Policy Response:

  • US government reviewing regulations and the power grid to accommodate AI growth.
  • Kaplan stresses need for investment in geothermal, modular nuclear, and easier transmission buildout.

• Crosscurrents for the Fed:

  • Energy costs from AI data centers feed into broader inflation.
  • Labor market weakness demands accommodation, but energy/AI-related price pressure complicates the picture.
    • “When you’ve got this kind of confusion, I think that's one reason why they've done nothing so far this year. But...the labor market is forcing their hand…” (Kaplan, [10:02])

3. China, AI Diffusion, and Globalization

• China’s AI Adoption Model:

  • China is ahead on practical adoption of AI in everyday businesses, not just tech giants.
    • “When I'm in China and we talk about AI, they talk about…regular businesses...are actively using AI to lower costs. Why is that happening?...Margins are lower. They're doing it out of necessity.” (Kaplan, [13:35])

• Globalization Shift:

  • Contrary to US narratives, globalization continues but with the US playing a less central role.
    • “Globalization is not dead. The United States is choosing to play a different role… But I've got to tell you, the other thing I saw…there's more coupling going on between China and other countries that are aggressively…So I think globalization and the AI story go together.” (Kaplan, [14:09])

• Reshoring and Tariffs:

  • U.S. clients and Chinese firms scrutinize what types of manufacturing (low vs. high margin) should be brought home.
  • Tariffs raise revenue but risk slower growth and harming small businesses.
    • “Tariffs raise revenue but they slow growth. And so for every dollar of tariff revenue, you...may give some back in a little bit lower growth.” (Kaplan, [19:10])

4. The Neutral Rate, Inflation, and Fiscal Pressures

• Why Is the Neutral Rate Higher?

  • “The inflation rate today is stickier…The neutral fed funds rate [in 2019]…was two and a half-ish. Today it's closer to three and a half. But there's only one reason for that. The inflation rate's higher.” (Kaplan, [21:10])

• Fiscal Deficit and the Rise of Gold:

  • Record government debt and years of stimulus have investors flocking to alternative stores of value.
    • “When you've got leverage in the United States…getting much higher in response to Covid, that's where people start to look at gold, bitcoin, other alternatives to paper currency.” (Kaplan, [24:37])
  • Surging gold and high equities are both rational in this environment—a split market.
    • “People can buy stocks and buy gold and be very careful about buying the 10 year and the 30 year treasury and I think that's kind of what we're seeing actually.” (Kaplan, [26:05])

• Fed’s Political Independence:

  • Regulatory policy is already political, but monetary policy has remained independent.
    • “Regulatory policy at the Fed is not…politically independent and hasn't been for a number of years. [But] on setting the fed funds rate…the Fed has been politically independent.” (Kaplan, [22:59])

5. US Tech, Earnings, and Global Role

• American Tech Abroad:

  • Even if US government pulls back globally, US tech companies remain engaged and competitive.
    • “The corporate world is continuing to chug along and build relationships globally even though at national level we're…trying to bring more to the United States...So we've got a kind of a dichotomy…” (Kaplan, [27:25])

• AI’s Productivity Promise in the U.S.:

  • US is still in the experimentation phase with broad adoption and proven use cases lagging behind China.
    • “We're kind of in that phase right now in the United States…When I say China's a little farther ahead…I think they've already tried and proven some of the use cases in more industry. We'll get there too…” (Kaplan, [29:11])

6. Wealth Bifurcation—The Tale of Two US Consumers

• Stock Market Wealth Effects:
  • Much of the consumer strength flows from older, asset-rich Americans.
    • “Half the workers…make $50,000 a year, are unlikely to have financial assets…They're spending every dollar they make.…There's another…Consumers…55 and older…have made a lot of money in the markets, to your point. And they're spending because they're getting wealthier…we're very heavily dependent on this second engine based on the stock market.” (Kaplan, [30:30])

7. Outlook for Rate Cuts

• Pacing and Extent of Easing:
  • Kaplan sees a cautious “halting” cut cycle, not a deep or fast one.
    • “Cut 25 in September. I think that's going to happen...Make sure that you're condensed. Still the labor market is weak. Check inflation…If it's continued to be weak and inflation is least moderate, you may do another one…might we wind up doing two or three this year? Maybe. Are we going to wind up doing 150, 200 basis points?...I don't see a justification for running a very stimulative monetary policy.” (Kaplan, [32:13])

Notable Quotes & Memorable Moments

• On the nature of rate cuts:
  • “It will be…a halting cycle…Fed meets every six weeks. Wipe the slate clean. Make sure the labor market is weak. Check inflation.” (Kaplan, [32:13])
• On AI and productivity:
  • “We're in the early innings of an AI data center power boom…I don't think it's showing up yet in a lot of productivity, but I think a year or two from now it will.” (Kaplan, [06:44])
• On US approach to globalization:
  • “Globalization is not dead…But globalization's going to happen with us or without us.” (Kaplan, [14:09])
• On gold versus stocks:
  • “People can buy stocks and buy gold and be very careful about buying the 10 year and the 30 year treasury…” (Kaplan, [26:05])

Timestamps for Important Segments

• Fed’s Immediate Policy Choices: [02:12] – [06:21]
• AI Boom, Power Grid, and Inflation: [07:46] – [11:33]
• Globalization & China’s AI Advantage: [13:10] – [15:37]
• Tariffs, Reshoring, and US Economy: [17:32] – [20:21]
• The Neutral Rate & Inflation Dynamics: [20:21] – [22:22]
• Fed Independence & Market Response: [22:22] – [24:30]
• Gold, Stocks, and Fiscal Risk: [24:30] – [26:54]
• US Tech and Globalization Paradox: [26:54] – [29:11]
• Consumer Divide & Asset Effects: [30:12] – [31:45]
• Rate Cut Outlook: [31:45] – [33:16]

Episode Takeaways

• The Fed is under pressure to cut rates due to labor market weakness, but sticky inflation and cross-currents from the AI boom and energy costs complicate policy.
• China’s organic AI adoption at the business level is outpacing the US, showing a different model of tech diffusion.
• Globalization is alive, but the US risks sidelining itself as other countries form new partnerships and supply chains.
• Current economic strength in the US is bifurcated, with stock market-driven consumer affluence masking underlying struggles for wage-earning Americans.
• Gold’s surge, alongside record equities, reflects market anxieties about government debt and fiscal sustainability.
• Any Fed rate cut cycle will likely be gradual, contingent on labor and inflation data, with little appetite for aggressive easing barring a deeper downturn.