Goldman Sachs' Robert Kaplan: Independent Fed is critical & Powell should be allowed to finish term

All right, first, we're going to turn to the Fed. Piper Sandler out with a new note discussing the possibility that President-elect Trump could name a so-called shadow Fed chairman soon after he takes office next year. Don't know exactly what that would mean, but we'll explore it. Trump repeatedly threatened to fire Powell in his first term. And in return, Powell has indicated that he's not going down without a fight if it comes up this time. For more on what all this means for the Fed going forward, we turn to Robert Kaplan. He's the former Dallas Fed president and the vice chairman at Goldman Sachs. Mr. Kaplan, welcome. Good to have you with us. Good to see you. Do you believe that the president has the power to fire the chair? It doesn't appear he does, but more importantly, I think having an independent central bank is very critical to the United States and to any country. And I would like to believe that the Fed will continue to remain politically independent, and that would mean allowing Jay Powell to finish out his term. The president has apparently in other venues said things like, I feel as though I need or deserve a, quote, say in monetary policy. Do you believe that is the case? And what would having a say mean in practice? So any president or elected official, or citizen for that matter, has the right to have a say about Fed policy. The issue for the Fed is you wanna be able to make decisions without regard to political influence or political considerations. And so the Fed's very used to people on the outside commenting, the president, even at times commenting. We saw that from 16 to 20, and they'll be able to manage that. I think the thing that the administration normally will have more of a say in is supervision. Usually that does change with administrations, and I think you'll see the approach to supervision likely change here also. So I'll get one more question, and then Kelly will jump in. I'm curious whether you think, I mean, the Fed has sort of signaled that it is on a prolonged rate-cutting mission. Do you think there's the possibility that the Fed might pause and take more of a wait and see attitude with a new administration coming in, with economic policies bound to change, with the incoming president saying he wants to re-up the 2017 tax cuts? Do you think that the Fed might sort of pause right now? Do you think it would be wise if they did? Yeah, so I said for the couple of months leading up to the election that there are gonna be two phases to the rate-cutting process. Phase one is with inflation sticky around 2 1⁄2%. I think the Fed has room to get the Fed funds rates down to 4 1⁄4, 4 1⁄2. That would mean one more rate-cut in December. I've felt for some time that unless you see demonstrable progress from 2 1⁄2 to 2, that the next set of cuts would be more uncertain, and I think the markets are starting to realize that even before the election. In light of the election now, you're gonna have a whole new raft of policies. So yeah, I think if I were sitting in my former seat, I would be non-committal even on December until I got to the December meeting. I wanna see the November jobs report. I wanna see inflation data. And I do think it might well be appropriate to take some time to see how these puzzle pieces of the new economic structure emerge before you make more decisions. And I think the Fed, in this kind of situation, is wise to be more of a risk manager, not a prognosticator. And I think if there are things that are unclear, I think it's okay to slow down and give some time to let them clarify. The timing could potentially be awkward then that they go on pause right as President Trump is coming into office, and that could be uncomfortable for them. At the same time, maybe I'm an outlier on this, I'm not convinced he's always for lower rates. And maybe he will be, but knowing that inflation is what got his predecessor thrown out of office to some extent, knowing that consumer prices may risk going higher because of tariffs anyway, maybe he wouldn't mind a little cover from the Fed to keep things on the margin tighter and keep inflation from really breaking out again. Yeah, I think they will be sensitive to that. But I have felt for the last couple of years we would have benefited more from a whole of government approach to fight inflation, meaning it shouldn't, in my opinion, it should not be just the Fed whose job it is to deal with inflation. So I think in this new administration, I think you're more likely to see a whole of government approach. What do I mean by that? I think you're likely to see some of these directed government programs, Inflation Reduction Act being the most significant, you might see those repurposed or stood down. I think you're likely to see a very substantial regulatory review economy-wide, which is intended to create more productivity growth. I do think you're gonna, on the other hand, probably see less workforce growth and you're certainly not gonna get the workforce surge that we got this year. And then we've got a number of other policies. You're gonna see more, I think more oil and gas production, more effort to get prices down at the pump. And there'll be a whole question of what the fiscal mix is gonna be as well as tariffs. But this is a, there's a lot of moving pieces and I think all of them may have some bearing on the organic growth of the economy. And I think we're likely to shift from a more, what we currently have a more government, I would argue directed economy with government spending to I think the objective may be a more organically driven growth economy. And I think we're gonna need to see more clarity on the policies to understand their impact on inflation. And I think the Fed will be a key player in this, but they won't be the only player going forward. All right. Robert Kaplan, thank you so much. Always good to hear from you. We appreciate it.