WEBVTT
1
00:00:00.360 --> 00:00:02.399
To cut or not to cut. That is the question.
2
00:00:02.520 --> 00:00:05.519
The market seems to have made its call. Is it right?
3
00:00:05.759 --> 00:00:08.480
Let's ask Robert Kaplan. He's the former Dallas FED president
4
00:00:08.560 --> 00:00:11.400
vice chairman Goldman Sachs, and he is here at post.
5
00:00:11.519 --> 00:00:12.400
Nice's nice to see you.
6
00:00:12.439 --> 00:00:14.199
Good to see you. I know that you avoided the.
7
00:00:14.119 --> 00:00:19.280
Incoming today in the presidential missive at Goldman Sachs. Congratulations.
8
00:00:19.920 --> 00:00:23.480
He wants cuts, He's made that clear. Rick Reader sat
9
00:00:23.519 --> 00:00:26.320
with me not fifteen twenty minutes ago and said FED
10
00:00:26.359 --> 00:00:29.160
should cut way too restrictive. You don't sound like you're
11
00:00:29.600 --> 00:00:30.160
that's sold.
12
00:00:31.000 --> 00:00:34.399
I'd be leaning toward cutting in September if I were
13
00:00:34.439 --> 00:00:38.640
in my former seat. The part that i'm sort of
14
00:00:38.799 --> 00:00:42.759
the cross current swaying weak job market, and you've heard
15
00:00:42.759 --> 00:00:47.280
me say before the headline unemployment rate mass a weaker
16
00:00:47.960 --> 00:00:51.119
job market than appears, and the reason unemployment so low
17
00:00:51.240 --> 00:00:53.920
is just lack of supply. But hiring is down to
18
00:00:53.960 --> 00:00:58.479
stall speed. That would move me toward wanting to cut. Also,
19
00:00:58.560 --> 00:01:03.759
you've got some disinflationary work forces, the A boom, big
20
00:01:03.799 --> 00:01:08.879
over capacity in goods, which I think was reflected today
21
00:01:09.239 --> 00:01:12.719
in the CPI. You got sluggish demand and so all
22
00:01:12.799 --> 00:01:14.200
that makes me lean to cut.
23
00:01:14.400 --> 00:01:17.599
Why not? Why just lean you sound you paint a
24
00:01:17.640 --> 00:01:20.159
scenario in which you'd be like falling.
25
00:01:19.799 --> 00:01:23.200
Over to cut. Here's the only thing I want to understand,
26
00:01:23.359 --> 00:01:26.120
and this is a sensitive topic, but I want to understand,
27
00:01:26.760 --> 00:01:31.040
is we're not through the setting of the tariffs. I
28
00:01:31.040 --> 00:01:34.359
think it's easier for businesses to process load to mid teens,
29
00:01:34.439 --> 00:01:38.319
a little harder to process high teens. It's going to
30
00:01:38.400 --> 00:01:43.159
get divvied up among suppliers, maybe a stronger dollar, maybe
31
00:01:43.159 --> 00:01:46.120
some margin erosion, maybe some in pricing. I don't know
32
00:01:46.159 --> 00:01:48.879
how it's going to be split, and at the FED,
33
00:01:49.400 --> 00:01:51.959
if you don't need to jump into that risk, we'll
34
00:01:52.000 --> 00:01:54.319
know a year from now how it was split. And
35
00:01:54.400 --> 00:01:57.040
so the weaker job market would push me to act.
36
00:01:57.319 --> 00:01:59.680
But if it weren't for that, I might want to
37
00:01:59.680 --> 00:02:01.040
be paid.
38
00:02:01.359 --> 00:02:06.079
Would you admit that the tariff sky is falling calls
39
00:02:06.159 --> 00:02:08.960
that have been out there from people that it's going
40
00:02:09.000 --> 00:02:12.000
to cause this inflation, that it hasn't materialized in a
41
00:02:12.120 --> 00:02:12.919
meaningful way.
42
00:02:13.039 --> 00:02:15.120
Yes, to this point, I do agree with that, And
43
00:02:15.280 --> 00:02:18.400
I've been saying for quite some time we're in a
44
00:02:18.520 --> 00:02:24.680
world of manufacturing and goods over capacity. The inflation issue
45
00:02:24.680 --> 00:02:27.599
in the United States, and this morning confirmed it has
46
00:02:27.639 --> 00:02:30.039
not been a goods issue, it's been a services issue.
47
00:02:30.120 --> 00:02:34.240
So yes, in that context, it makes me feel more
48
00:02:34.280 --> 00:02:38.960
confident that maybe after these tariffs gets set over the
49
00:02:39.000 --> 00:02:41.680
next year, will realize it's a one time price effect,
50
00:02:41.759 --> 00:02:42.520
not persistent.
51
00:02:43.439 --> 00:02:46.560
Sounded like the Kansas City Fed pres today was hold.
52
00:02:46.639 --> 00:02:49.599
I mean, how in your environment, the one that you see,
53
00:02:49.599 --> 00:02:54.520
how can anybody be a firm? Hold? Let's not raise rates,
54
00:02:55.400 --> 00:02:56.400
not cut rates right now?
55
00:02:56.800 --> 00:03:00.240
The argument around the table for not cutting is the
56
00:03:00.360 --> 00:03:05.599
job market is still. What they're being swayed by is
57
00:03:05.639 --> 00:03:08.360
the headline unemployment rate of four to two. They're saying,
58
00:03:09.080 --> 00:03:12.599
you know, yeah, hiring a sluggish, but we're in balance
59
00:03:12.719 --> 00:03:16.199
and we still are above target on inflation. My counter
60
00:03:16.360 --> 00:03:19.000
argument to that would be, I think the hiring market
61
00:03:19.080 --> 00:03:21.680
is much weaker and the job market is much weaker.
62
00:03:21.719 --> 00:03:24.120
You have to look more broadly than headline. But those
63
00:03:24.159 --> 00:03:27.280
that will counter argue are saying, we're still a full
64
00:03:27.280 --> 00:03:29.000
employment you should be more patient.
65
00:03:29.120 --> 00:03:33.000
Okay, so you've stated your position that you're leaning if.
66
00:03:32.879 --> 00:03:35.039
You were in your former be inclined to cut.
67
00:03:35.080 --> 00:03:36.560
Okay, what will they do?
68
00:03:36.919 --> 00:03:39.159
What will they do? In September. I think they will
69
00:03:39.280 --> 00:03:42.560
ultimately cut in September. The only thing that could derail
70
00:03:42.639 --> 00:03:45.080
it is you've got a surprise in the job report
71
00:03:45.159 --> 00:03:48.639
early September. I don't expect that the part that may
72
00:03:48.719 --> 00:03:52.680
disappoint people. This, in my opinion, is not the start
73
00:03:52.840 --> 00:03:56.360
of a cutting cycle. It is we'll cut in September,
74
00:03:56.439 --> 00:03:59.319
and then you wipe the slate clean and take another
75
00:03:59.360 --> 00:04:02.199
six weeks to assess these cross currents, make a new
76
00:04:02.240 --> 00:04:05.919
decision October, and a new decision or October November, and
77
00:04:05.960 --> 00:04:08.560
a new decision in December. I think the markets I've
78
00:04:08.639 --> 00:04:11.240
gotten ahead of that and are saying it's much more
79
00:04:11.319 --> 00:04:13.479
likely they're going to cut two or three times. And
80
00:04:13.560 --> 00:04:16.160
I don't think it's as clear as that. They may
81
00:04:16.199 --> 00:04:18.439
wind up doing it, but they're going to have to
82
00:04:18.519 --> 00:04:19.360
feel their way through.
83
00:04:19.519 --> 00:04:22.000
You think it could really be a twenty five one
84
00:04:22.040 --> 00:04:23.519
and done for a while.
85
00:04:23.639 --> 00:04:26.439
The only reason why it would be if you saw
86
00:04:26.560 --> 00:04:31.600
that the weakness in the job market was overstated. I
87
00:04:31.600 --> 00:04:34.199
don't think that's going to happen. Then they'll have to
88
00:04:34.240 --> 00:04:38.680
assess that for November. But whether it's going to be three,
89
00:04:38.759 --> 00:04:40.680
I think it's more likely to be two than three.
90
00:04:40.800 --> 00:04:43.279
For example. But I don't know, and so we're going
91
00:04:43.360 --> 00:04:46.079
to have to see. Now. One other comment I would
92
00:04:46.120 --> 00:04:48.160
make a lot of people say, well, look at last fall,
93
00:04:48.600 --> 00:04:51.759
they cut fifty in September. I wouldn't have done the
94
00:04:51.800 --> 00:04:55.160
last twenty five in December, but they did one hundred
95
00:04:55.199 --> 00:04:58.680
basis points. But the difference was a year ago we
96
00:04:58.680 --> 00:05:00.600
were at five and a quarter five and a half.
97
00:05:00.920 --> 00:05:03.639
We had a lot more room in my opinion, at
98
00:05:03.639 --> 00:05:05.680
four and a quarter four and a half. I think
99
00:05:05.680 --> 00:05:08.560
you can cut down to three and a quarter three fifty.
100
00:05:08.600 --> 00:05:10.360
But I don't think there's a lot more room to
101
00:05:10.399 --> 00:05:13.040
cut than that. And why do I say that. I
102
00:05:13.079 --> 00:05:15.240
think the inflation rates around two and a half two
103
00:05:15.279 --> 00:05:17.360
and three quarters, and the real FED funds rate, in
104
00:05:17.439 --> 00:05:20.279
my opinion, is three quarters. So I think you got
105
00:05:20.319 --> 00:05:23.360
seventy five to one hundred basis points of room, whereas
106
00:05:23.399 --> 00:05:25.120
a year ago I think you had more like one
107
00:05:25.160 --> 00:05:27.399
hundred and seventy five two hundred basis points of room.
108
00:05:27.680 --> 00:05:30.480
Who would be the best next chair of the Fed
109
00:05:30.519 --> 00:05:32.800
in your mind? Because the pool is getting bigger.
110
00:05:33.279 --> 00:05:36.480
I think any number of the candidates who've been talked
111
00:05:36.480 --> 00:05:39.720
about the key for the next chair, they have to
112
00:05:39.920 --> 00:05:43.519
have strong economic views on their own two feet. They
113
00:05:43.519 --> 00:05:46.120
have to command the respect of the room. They have
114
00:05:46.199 --> 00:05:49.199
to be good at assembling a consensus, and I do
115
00:05:49.240 --> 00:05:53.160
believe they have to demonstrate that they can throw in
116
00:05:53.199 --> 00:05:55.920
new ideas, out of the box ideas, but they have
117
00:05:56.000 --> 00:05:59.160
to be committed to the ethic of the FED, which
118
00:05:59.160 --> 00:06:04.560
is independent from political influence. In political considerations.
119
00:06:04.519 --> 00:06:06.720
They have, but that's your own point of view. They
120
00:06:06.759 --> 00:06:10.839
have my point because the President and other people around
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him may have a different idea. They may.
122
00:06:13.160 --> 00:06:15.839
You asked my opinion, Yeah, so that was my opinion.
123
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My opinion is I think the country would be best
124
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served and all parties would be best served by someone
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who fit those characters.
1
00:00:00.360 --> 00:00:02.399
To cut or not to cut. That is the question.
2
00:00:02.520 --> 00:00:05.519
The market seems to have made its call. Is it right?
3
00:00:05.759 --> 00:00:08.480
Let's ask Robert Kaplan. He's the former Dallas FED president
4
00:00:08.560 --> 00:00:11.400
vice chairman Goldman Sachs, and he is here at post.
5
00:00:11.519 --> 00:00:12.400
Nice's nice to see you.
6
00:00:12.439 --> 00:00:14.199
Good to see you. I know that you avoided the.
7
00:00:14.119 --> 00:00:19.280
Incoming today in the presidential missive at Goldman Sachs. Congratulations.
8
00:00:19.920 --> 00:00:23.480
He wants cuts, He's made that clear. Rick Reader sat
9
00:00:23.519 --> 00:00:26.320
with me not fifteen twenty minutes ago and said FED
10
00:00:26.359 --> 00:00:29.160
should cut way too restrictive. You don't sound like you're
11
00:00:29.600 --> 00:00:30.160
that's sold.
12
00:00:31.000 --> 00:00:34.399
I'd be leaning toward cutting in September if I were
13
00:00:34.439 --> 00:00:38.640
in my former seat. The part that i'm sort of
14
00:00:38.799 --> 00:00:42.759
the cross current swaying weak job market, and you've heard
15
00:00:42.759 --> 00:00:47.280
me say before the headline unemployment rate mass a weaker
16
00:00:47.960 --> 00:00:51.119
job market than appears, and the reason unemployment so low
17
00:00:51.240 --> 00:00:53.920
is just lack of supply. But hiring is down to
18
00:00:53.960 --> 00:00:58.479
stall speed. That would move me toward wanting to cut. Also,
19
00:00:58.560 --> 00:01:03.759
you've got some disinflationary work forces, the A boom, big
20
00:01:03.799 --> 00:01:08.879
over capacity in goods, which I think was reflected today
21
00:01:09.239 --> 00:01:12.719
in the CPI. You got sluggish demand and so all
22
00:01:12.799 --> 00:01:14.200
that makes me lean to cut.
23
00:01:14.400 --> 00:01:17.599
Why not? Why just lean you sound you paint a
24
00:01:17.640 --> 00:01:20.159
scenario in which you'd be like falling.
25
00:01:19.799 --> 00:01:23.200
Over to cut. Here's the only thing I want to understand,
26
00:01:23.359 --> 00:01:26.120
and this is a sensitive topic, but I want to understand,
27
00:01:26.760 --> 00:01:31.040
is we're not through the setting of the tariffs. I
28
00:01:31.040 --> 00:01:34.359
think it's easier for businesses to process load to mid teens,
29
00:01:34.439 --> 00:01:38.319
a little harder to process high teens. It's going to
30
00:01:38.400 --> 00:01:43.159
get divvied up among suppliers, maybe a stronger dollar, maybe
31
00:01:43.159 --> 00:01:46.120
some margin erosion, maybe some in pricing. I don't know
32
00:01:46.159 --> 00:01:48.879
how it's going to be split, and at the FED,
33
00:01:49.400 --> 00:01:51.959
if you don't need to jump into that risk, we'll
34
00:01:52.000 --> 00:01:54.319
know a year from now how it was split. And
35
00:01:54.400 --> 00:01:57.040
so the weaker job market would push me to act.
36
00:01:57.319 --> 00:01:59.680
But if it weren't for that, I might want to
37
00:01:59.680 --> 00:02:01.040
be paid.
38
00:02:01.359 --> 00:02:06.079
Would you admit that the tariff sky is falling calls
39
00:02:06.159 --> 00:02:08.960
that have been out there from people that it's going
40
00:02:09.000 --> 00:02:12.000
to cause this inflation, that it hasn't materialized in a
41
00:02:12.120 --> 00:02:12.919
meaningful way.
42
00:02:13.039 --> 00:02:15.120
Yes, to this point, I do agree with that, And
43
00:02:15.280 --> 00:02:18.400
I've been saying for quite some time we're in a
44
00:02:18.520 --> 00:02:24.680
world of manufacturing and goods over capacity. The inflation issue
45
00:02:24.680 --> 00:02:27.599
in the United States, and this morning confirmed it has
46
00:02:27.639 --> 00:02:30.039
not been a goods issue, it's been a services issue.
47
00:02:30.120 --> 00:02:34.240
So yes, in that context, it makes me feel more
48
00:02:34.280 --> 00:02:38.960
confident that maybe after these tariffs gets set over the
49
00:02:39.000 --> 00:02:41.680
next year, will realize it's a one time price effect,
50
00:02:41.759 --> 00:02:42.520
not persistent.
51
00:02:43.439 --> 00:02:46.560
Sounded like the Kansas City Fed pres today was hold.
52
00:02:46.639 --> 00:02:49.599
I mean, how in your environment, the one that you see,
53
00:02:49.599 --> 00:02:54.520
how can anybody be a firm? Hold? Let's not raise rates,
54
00:02:55.400 --> 00:02:56.400
not cut rates right now?
55
00:02:56.800 --> 00:03:00.240
The argument around the table for not cutting is the
56
00:03:00.360 --> 00:03:05.599
job market is still. What they're being swayed by is
57
00:03:05.639 --> 00:03:08.360
the headline unemployment rate of four to two. They're saying,
58
00:03:09.080 --> 00:03:12.599
you know, yeah, hiring a sluggish, but we're in balance
59
00:03:12.719 --> 00:03:16.199
and we still are above target on inflation. My counter
60
00:03:16.360 --> 00:03:19.000
argument to that would be, I think the hiring market
61
00:03:19.080 --> 00:03:21.680
is much weaker and the job market is much weaker.
62
00:03:21.719 --> 00:03:24.120
You have to look more broadly than headline. But those
63
00:03:24.159 --> 00:03:27.280
that will counter argue are saying, we're still a full
64
00:03:27.280 --> 00:03:29.000
employment you should be more patient.
65
00:03:29.120 --> 00:03:33.000
Okay, so you've stated your position that you're leaning if.
66
00:03:32.879 --> 00:03:35.039
You were in your former be inclined to cut.
67
00:03:35.080 --> 00:03:36.560
Okay, what will they do?
68
00:03:36.919 --> 00:03:39.159
What will they do? In September. I think they will
69
00:03:39.280 --> 00:03:42.560
ultimately cut in September. The only thing that could derail
70
00:03:42.639 --> 00:03:45.080
it is you've got a surprise in the job report
71
00:03:45.159 --> 00:03:48.639
early September. I don't expect that the part that may
72
00:03:48.719 --> 00:03:52.680
disappoint people. This, in my opinion, is not the start
73
00:03:52.840 --> 00:03:56.360
of a cutting cycle. It is we'll cut in September,
74
00:03:56.439 --> 00:03:59.319
and then you wipe the slate clean and take another
75
00:03:59.360 --> 00:04:02.199
six weeks to assess these cross currents, make a new
76
00:04:02.240 --> 00:04:05.919
decision October, and a new decision or October November, and
77
00:04:05.960 --> 00:04:08.560
a new decision in December. I think the markets I've
78
00:04:08.639 --> 00:04:11.240
gotten ahead of that and are saying it's much more
79
00:04:11.319 --> 00:04:13.479
likely they're going to cut two or three times. And
80
00:04:13.560 --> 00:04:16.160
I don't think it's as clear as that. They may
81
00:04:16.199 --> 00:04:18.439
wind up doing it, but they're going to have to
82
00:04:18.519 --> 00:04:19.360
feel their way through.
83
00:04:19.519 --> 00:04:22.000
You think it could really be a twenty five one
84
00:04:22.040 --> 00:04:23.519
and done for a while.
85
00:04:23.639 --> 00:04:26.439
The only reason why it would be if you saw
86
00:04:26.560 --> 00:04:31.600
that the weakness in the job market was overstated. I
87
00:04:31.600 --> 00:04:34.199
don't think that's going to happen. Then they'll have to
88
00:04:34.240 --> 00:04:38.680
assess that for November. But whether it's going to be three,
89
00:04:38.759 --> 00:04:40.680
I think it's more likely to be two than three.
90
00:04:40.800 --> 00:04:43.279
For example. But I don't know, and so we're going
91
00:04:43.360 --> 00:04:46.079
to have to see. Now. One other comment I would
92
00:04:46.120 --> 00:04:48.160
make a lot of people say, well, look at last fall,
93
00:04:48.600 --> 00:04:51.759
they cut fifty in September. I wouldn't have done the
94
00:04:51.800 --> 00:04:55.160
last twenty five in December, but they did one hundred
95
00:04:55.199 --> 00:04:58.680
basis points. But the difference was a year ago we
96
00:04:58.680 --> 00:05:00.600
were at five and a quarter five and a half.
97
00:05:00.920 --> 00:05:03.639
We had a lot more room in my opinion, at
98
00:05:03.639 --> 00:05:05.680
four and a quarter four and a half. I think
99
00:05:05.680 --> 00:05:08.560
you can cut down to three and a quarter three fifty.
100
00:05:08.600 --> 00:05:10.360
But I don't think there's a lot more room to
101
00:05:10.399 --> 00:05:13.040
cut than that. And why do I say that. I
102
00:05:13.079 --> 00:05:15.240
think the inflation rates around two and a half two
103
00:05:15.279 --> 00:05:17.360
and three quarters, and the real FED funds rate, in
104
00:05:17.439 --> 00:05:20.279
my opinion, is three quarters. So I think you got
105
00:05:20.319 --> 00:05:23.360
seventy five to one hundred basis points of room, whereas
106
00:05:23.399 --> 00:05:25.120
a year ago I think you had more like one
107
00:05:25.160 --> 00:05:27.399
hundred and seventy five two hundred basis points of room.
108
00:05:27.680 --> 00:05:30.480
Who would be the best next chair of the Fed
109
00:05:30.519 --> 00:05:32.800
in your mind? Because the pool is getting bigger.
110
00:05:33.279 --> 00:05:36.480
I think any number of the candidates who've been talked
111
00:05:36.480 --> 00:05:39.720
about the key for the next chair, they have to
112
00:05:39.920 --> 00:05:43.519
have strong economic views on their own two feet. They
113
00:05:43.519 --> 00:05:46.120
have to command the respect of the room. They have
114
00:05:46.199 --> 00:05:49.199
to be good at assembling a consensus, and I do
115
00:05:49.240 --> 00:05:53.160
believe they have to demonstrate that they can throw in
116
00:05:53.199 --> 00:05:55.920
new ideas, out of the box ideas, but they have
117
00:05:56.000 --> 00:05:59.160
to be committed to the ethic of the FED, which
118
00:05:59.160 --> 00:06:04.560
is independent from political influence. In political considerations.
119
00:06:04.519 --> 00:06:06.720
They have, but that's your own point of view. They
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have my point because the President and other people around
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him may have a different idea. They may.
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You asked my opinion, Yeah, so that was my opinion.
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My opinion is I think the country would be best
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served and all parties would be best served by someone
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who fit those characters.
