Fed Getting Closer to Neutral Rate, Says Goldman's Kaplan

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Goldman Sachs 9.0
Investment Bank $2500.00B
Robert Kaplan 9.0

Fed Getting Closer to Neutral Rate, Says Goldman's Kaplan

yields

The Fed is getting closer to neutral interest rate range of 3.5 to 3.75. They are likely to cut in October but remain vigilant beyond that, guarding against weakening labor market while inflation is still above target around 2.75 to 3 percent. Due to inflation remaining above target and labor market dynamics, the Fed is cautiously approaching neutral rates with potential cuts, implying bond yields may drift moderately lower over the medium term.

10/28/2025 1:59:32 PM	short term cautious down	5 days later	+1.18%	-0.59%
10/24/2025 6:55:30 PM	medium term cautious down	21 days later	+3.40%	-1.70%
10/15/2025 9:58:39 AM	medium term cautious down	20 days later	+4.55%	-2.28%
10/7/2025 1:51:58 PM	short term up	5 days later	-1.89%	-1.89%
9/29/2025 2:12:26 PM	short term cautious down	6 days later	+0.34%	-0.17%
9/16/2025 4:19:00 PM	medium term cautious down	20 days later	+1.25%	-0.63%
9/11/2025 1:30:06 AM	short term cautious down	5 days later	+0.37%	-0.18%
9/9/2025 10:35:22 PM	short term cautious down	5 days later	+0.05%	-0.02%
9/5/2025 6:25:27 PM	medium term cautious down	21 days later	+2.35%	-1.17%
9/3/2025 7:20:32 PM	short term cautious down	5 days later	-2.44%	+1.22%
9/2/2025 1:47:03 PM	short term sharp up	5 days later	-3.92%	-5.88%
8/12/2025 11:12:01 PM	short term cautious down	5 days later	+2.43%	-1.22%
8/6/2025 7:05:41 PM	medium term cautious down	20 days later	-0.14%	+0.07%
8/1/2025 6:12:49 PM	short term down	7 days later	+1.74%	-1.74%

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Let's talk about the data if we can. You're in a position now where you've got a ton of data yourself. What's it like at the Federal Reserve? Just this idea of flying blind without having that official. What does that mean?

speaker1
speaker3

On the margin, they can still use private sources and they can talk to businesses. The sense is that hiring is sluggish. I think you hear that from business. We're not firing significantly either. The unemployment rate's not going up because supply of labor is flat to down. The Fed would benefit from more formal data as they get closer to neutral, which is estimated in the range of 3.5 to 3.75. They are getting closer. The real Fed funds neutral rate is about 0.75. Inflation is currently 2.75 to 3%. With inflation above target, moving to neutral shows some risk, and the Fed must guard against labor weakening. The Fed will likely cut in October but be vigilant beyond that.
speaker3

The debate about neutral rate depends on inflation assumptions. With inflation still above target, scrutiny of labor market developments is important. Trading off risks of weakening labor market. The pursuit of 2% inflation remains credible despite years above target due to factors like Chinese overcapacity and AI causing disinflationary pressures. Inflation above target is a regressive tax affecting many Americans.
speaker3

Fed benefited from service sector inflation running in mid-threes, but goods inflation disinflated fueled by China. Tariff episode stalled disinflation at least in the US, but over time disinflation may seep back in. Tariffs have slowed growth and pressured margins for companies, with price increases difficult strategically. Companies are taking margin losses for now but may raise prices later.
speaker3

Global economy faces tailwinds like AI and data center power boom potentially boosting productivity. Challenges include aging populations and overleverage. Regulatory relief and tax incentives in US hopeful to improve growth, but de-globalization raises costs and complicates problems for countries outside US.

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