Stagflation and the Fed's next move

As The US economy faces a stagflationary shock, how will the Fed navigate this tricky environment? I'm Alison Nathan, and this is Goldman Sachs Exchanges. My guest today is Rob Kaplan, the vice chairman of Goldman Sachs and the former president of the Dallas Fed. Rob, welcome back to the program. Good

to see you, Allison. So,

Rob, there is so much to talk about today. But, of course, there is a lot of concern that The US is headed for a stagflation shock, which is notoriously difficult for monetary policymakers to deal with. So first of all, let's just get your view. Do you think that we are facing stagflation ahead?

We are facing most likely slower growth and stickier prices, so I guess that might be the definition of stagflation. And there's several reasons why, not just tariffs. We're right now in the middle of an effort to cut government spending and lower deficits. So it's a question mark how effective it's going, but that would normally slow growth. You've got a regulatory review in every industry that should help growth, but it might take a year or two. You've got immigration flows due to deportations. Immigration and flow of workforce is decelerating, is declining. Workforce growth helps growth. We

how does the Fed weigh these risks of slower growth but higher inflation? We have a FOMC meeting coming up. What will the conversation be like in the Echols Building?

So the smartest thing the Fed could do, and if I were in my former seat, agree what you know and acknowledge what you don't know. And right now, the things you don't know are significant. I don't know what the tariff levels are gonna be. We haven't announced any of these trade levels yet. I do know that immigration growth is slowed, and workforce growth is slower, and I know what they're trying to do with the government. So what I I would say is the soft data, I know that's weaker, but so far other than travel, leisure, shipping, those are clearly soft, but the hard data or otherwise is kinda

you basically think the Fed sits tight here. In

May. In

May. Watches, waits. And that's the message they've been given. I mean, they've basically said, we will wait to see how this evolves and how the data evolves, and we'll go from there. So they could not cut it all this year, or they could cut by a lot. Yeah.