Key questions for 2026 are Fed interest rate policy and the next chair. Introduces Robert Kaplan, former Dallas Fed president, now vice chairman at Goldman Sachs.
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Robert Kaplan
Would have argued against a rate cut. Believes the economy is heading into a firming period in 2026 due to regulatory relief, tax benefits, tax refunds, and continuation of the AI boom.
Clarifies if 'firming' refers to inflation firming further.
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Robert Kaplan
GDP growth is going to firm. Inflation may be sticky in the first half of the year.
Asks if he would be willing to 'run it hot' to protect the labor market, citing Chris Waller's view that the labor market says you can cut again.
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Robert Kaplan
Believes the Fed has bought its insurance with 75 basis points of cuts. A lot of labor weakness is structural (tariffs, AI anticipation).
Questions if the 4.6% unemployment rate is legitimate or skewed.
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Robert Kaplan
The unemployment rate is a little skewed due to the shutdown and a jump in labor supply.
Asks about the divided nature of the Fed and how it resolves.
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Robert Kaplan
The divide accentuated as the Fed got close to neutral. His estimate of neutral is 3.5% to 3.75% (2.75% inflation plus 0.75-1% real).
Counters that two-sided risks remain: waiting for inflation improvement risks the labor market turning worse too late.
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Robert Kaplan
It's healthy to have the debate. Chris Waller is more worried about weakness.