Rob Kaplan on the Fed, AI, and How Globalization Is Happening Without the US

In this live episode, recorded at the Future Proof Festival in Huntington Beach, California, we speak with Rob Kaplan, the former president of the Dallas Federal Reserve Bank and the current vice chairman of Goldman Sachs. We discuss his views on the rate path, and why he does not see the Fed cutting by 50 bps at the next meeting. We also discuss the general macroeconomic environment, the US vs. China AI race, and why he sees globalization on the march — except it's happening without the US. Odd Lots is coming to Chicago for a live episode! Get your tickets hereOnly Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

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  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

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  But according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

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• 3:00Tracy Alloway?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 3:06Joe Weisenthal?

  And I'm Tracy Alloway.

• 3:07Tracy Alloway?

  Today you are listening to a special episode of the podcast. It was recorded live at the Future Proof Conference in Huntington Beach.

• 3:15Joe Weisenthal?

  Yep, we're going to be speaking with former Dallas Fed President, Robert Kaplan. He is now Vice Chairman of Goldman Sachs. Again, this was recorded live onstage at Future Proof, so take a listen.

• 3:25Tracy Alloway?

  All right, let's just kick it straight off. That jobs report that we got last week, in your view, with your Fed hat on maybe, is a 50 basis point rate cut in play for the next meeting?

• 3:38Speaker 07

  I think 50 basis points is still unlikely. I think we've been of the view for the last few months, the job market was weak. This latest report was a little weaker. Having said that, the reason 25 is more likely than 50 is it wasn't, the jobs market is not falling off a cliff. We didn't get shrinkage and inflation is running.

• 4:14Speaker 07

  At two and three quarters to 3% above target. And so it sort of puts a little bit of a headwind on doing more than 25 basis points.

• 4:23Tracy Alloway?

  I mean, I take your point, but the report was still a huge surprise. So if you were in the newsroom when that number came out, just 22,000 jobs added, there was a sort of collective gasp because it was way below basically the entire range of expectations for that particular month. If you're at the Fed and you see a number like that, what does 22,000 actually tell you or are you sitting there going, well, maybe I'll wait for the revision until I really make up my mind?

• 4:50Speaker 07

  I don't know that the weakness in the jobs market was a big surprise to the Fed. They didn't know exactly what the number would be, but they expected to be anemic. The reason that the unemployment rate has stayed low is we are not, we've shut down undocumented immigration. We have not ramped up legal immigration and as you well know, we are deporting some number of workers and chilling 10 to 15 million undocumented immigrants who are in the workforce. And some percentage of them are not going to work. And so, supply is anemic. We've thought for the last few months that hiring was kind of, we said, at stall speed.

• 5:35Speaker 07

  You should assume if GDP growth is one and a quarter, one and a half percent, hiring's going to be anemic. So we could debate the number, but I don't think it was a big shock that it was weak. And I think it wouldn't surprise me to see the next number also lethargic. So why aren't we falling off a cliff? We still are running a large deficit. We have tax incentives coming. We're in the middle of an AI data center power boom, as you just heard about in the previous session. And I think that's still bolstering the economy.

• 6:06Joe Weisenthal?

  Well, then let me take the flip side of Tracy's question because, okay, maybe setting aside reasons for concern, the flip side, as you mentioned, inflation's still running above target by most measures. The stock market, I haven't actually, I don't know what it's doing today, but it's very close to all-time highs regardless of what it's doing today. All kinds of people are having a really nice time on the beach in Southern California. What is the evidence that as currently standing, that Fed policy is actually restrictive? Clearly, the FOMC has come around to this view of cuts. It seems like cuts are locked in, but you don't have to have the FOMC view anymore. Like, is it obvious that cuts are needed at this point?

• 6:46Speaker 07

  Yeah, I think if it were not for the weakness that we've seen in the labor market, the Fed would want to stand pat. Because we are, it's one thing to be above your inflation target. We're not moving toward the inflation target.

• 7:00Joe Weisenthal?

  Right.

• 7:00Speaker 07

  We're going sideways to backing up. But with this weak labor market, I think it brings the fact you need to cut into play. Now, what's the neutral rate? I think the neutral rate today, you got a 2 and 3/4% inflation rate, 75 basis point real Fed funds rate. Means the neutral rate to me is around 3.5%. We don't have a lot of space to cut to get to neutral, but I think you've got 75 to 100 basis points. I think the goal of the Fed will be cut in September, stay restrictive, and if the labor market stays weak, keep going. If it stabilizes, then you have the option to hold off. And I think that's what they'll do.

• 7:44Tracy Alloway?

  Just going back to financial conditions and stock markets at all-time highs. I mean, if the Fed cuts at this current juncture, you know, call it an insurance cut or whatever, but if the economy re-accelerates after that.

• 7:57Speaker 07

  Which it may.

• 7:58Tracy Alloway?

  Yeah, which it may. Would you be worried about that side of the outcome, given that, as you said, inflationary pressures seem to be going sideways to possibly up?

• 8:07Speaker 07

  Yeah, so a lot of people look at financial conditions and see it as a reason the Fed shouldn't act. I actually come at it from someplace different. The economic statistics are reflective of what's going on right now. In fact, even more than that, what has gone on, not even what's going on right now. The stock market and other financial markets are a assessment of what's going to happen for the next three to five years. We, as we know, we're in the middle and the early innings of an AI data center power boom. I don't think it's showing up yet in product, in a lot of productivity, but I think a year or two from now it will.

• 8:49Speaker 07

  The stock market rightly or wrongly, I think, is making that bet. It's betting that productivity's going to improve, corporate earnings are going to get better. You're not seeing it show up in the current economy. The Fed's job is to look at financial conditions, but but adjust policy based on the current economy, not the bet the market's making for two or three years.

• 9:10Joe Weisenthal?

  I'm glad you brought that up about the AI boom, the power, the data center boom and so forth, and that it's not showing up yet in productivity, but it may be showing up in greater strain on the grid. It may be showing up in greater strain on certain electrical gear that's necessary, that's been in shortage for all manufacturers for years now.

• 9:30Speaker 07

  That's right.

• 9:31Joe Weisenthal?

  As of right now, in September 2025, could we say that if anything, the AI boom is like sort of having a crowding out effect or slightly inflationary, where the costs right now, just on a static extent, setting aside the bet, are a bit of a drag?

• 9:46Speaker 07

  There are two big structural initiatives that are being pursued by this administration. One is regulatory review and regulatory relief, because they want to ease the speeding to adoption of AI and get more capital available. But the second thing is there's an extensive re-review of the power grid. We are behind China.

• 10:09Speaker 07

  In having enough power to fund the AI explosion. We've got to invest more in geothermal, more modular nuclear. We need to make it easier to run a refinery, make it easier to do transmission. And I think you're going to find there's going to be enormous efforts because we are behind and in some states, to your point, there is a crowding out and I think people are afraid at some states, the leaders are afraid to take more data centers for fear it's going to crowd out individuals. Yeah. So this is a big structural initiative that isn't getting in the press a lot, but it's a big initiative going on in this country that's a dramatic change and it's needed.

• 10:49Tracy Alloway?

  What does that actually mean for Fed policy? Because if I think about this crowding out idea and all the demand for databases and the things that power them, we have seen electricity prices start to go up. I know the Fed, the Fed's preferred inflation measure is X energy and food prices, but on the other hand, electricity prices feed into the cost of pretty much everything. And also, this doesn't seem like a bottleneck that we're going to be solving, you know, within the next two or three years or even 10 years, to be frank. If you were at the Fed right now and you see electricity prices going up, how are you thinking through that pressure?

• 11:26Speaker 07

  So, let me put it in context. There are cross-currents, I mean, real cross-currents. You just mentioned one. On the one hand, you've got the government is trying to reduce government-directed spending and replace it with more incentives, tax incentives. Obviously, the tariffs have been put in place. Those are slowing growth and they have a tendency to raise costs. They might be one time. And the labor force, as I just mentioned, we are actually decelerating and reducing labor force growth because of immigration policy. That's actually helping us be at full employment and the Fed's been taken by that, but also

• 12:10Speaker 07

  makes prices stickier, wages stickier. At the same time, you just said you've got these booms in AI and the grid and you've got, we need more labor, we need more power, and that actually stresses prices. So when you're at the Fed, when you've got this kind of confusion... I think that's one reason why they've done nothing so far this year. But I think the labour market is forced in their hand where if it gets even weaker, they really don't want that. And that's why they're acting.

• 12:57Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 13:13Speaker 08

  We're seeing a lot of insocial players come in, digital asset dedicated hedge funds, high frequency traders and that sort of thing, and folks who service insocial clients.

• 13:22Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reese Merrick of Ripple says.

• 13:30Speaker 09

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 13:49Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 13:59Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 14:41Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 15:22Joe Weisenthal?

  Let's talk about AI in China a little bit more. You mentioned the power element, and there are a lot of people anxious about the constraints on the US grid, and you get all these big capex numbers, and can the grid even support that? What else is different besides the electricity component? Because some people we've talked to talk about there is a very different attitude towards the tech diffusion, particularly out of China, or supply chains that run through China.

• 15:47Speaker 07

  So, and I just got back from Asia, and I was in China last week. When we talk about AI, we tend to look at the hyperscalers, these big giant companies that make up a disproportionate share of the S and P 500, and they're spending hundreds of billions of dollars. They're making a lot of money. When I'm in China and we talk about AI, they talk about, the word you used, diffusion. They talk about regular businesses, the McDonald's of China, Luken Coffee in China.

• 16:22Joe Weisenthal?

  We have them in New York City right now, and I tried one, and it's very good, actually.

• 16:25Speaker 07

  Yes, but those companies are actively using AI to lower costs. And so why is that happening? I'd say we're further along, China's further along than we are. Why? Their margins are lower. They're doing it out of necessity. Our margins in the US, our companies, are higher, and so there's not as much pressure to lower costs and make AI experiments. In China, they don't have a choice. It's so competitive, they need to lower costs. But the thing that struck me, there's a lot to learn from what they're doing in China. Normally, if we were a little more globally integrated, we would learn those things and bring those learnings back to the United States.

• 17:10Speaker 07

  And it reminded me that globalization...

• 17:14Speaker 07

  is not dead. The United States is choosing to play a different role in it and stepping back. But I got to tell you, the other thing I saw there is there's more coupling going on between China and other countries that are aggressively, Canada is much more aggressive in trying to form new partnerships. So I think globalization and the AI story go together. And I got to tell you, globalization not going away. And the US is going to have a choice in the years to come, how much of a role we want to play in participating. But it's going to happen with us or without us.

• 17:49Tracy Alloway?

  So we can sit here and ask you what you saw in China and what your thoughts were about China. But I am very aware that when you go on that type of trip, you have Chinese clients who are asking you your thoughts on the US and what's going on here. What are the type of questions that you're getting from Chinese clients at the moment? What are they interested in?

• 18:07Speaker 07

  So the biggest item I'd say of discussion is, and I used to be in Asia for the first part of my career. And what I found in Korea, Taiwan, China, to a large extent, their whole effort was to go from low value-added manufacturing to high value-added manufacturing. And they tried to wean off of lower value-added manufacturing. What's an example? T-shirts and sneakers used to be made in China. Today, they're made in Vietnam. Why China wants to move up the value chain? Because their feeling is they're going to raise the standard of living to higher value-added manufacturing.

• 18:49Speaker 07

  The question sometimes I get when I'm over there is, if you're going to reshore to the United States, are you going to really reshore lumber, aluminum, some of these other lower value-added manufacturing? Wouldn't solidifying the relationship with Canada and Mexico make sense? Where you can get cheap natural resources from Canada, cheap labor from Mexico, and solidify North America? And so I'd say that they're not critical of us, but they're scratching their heads a little bit to say, what's the strategic rationale? Because you're tied on labor, you normally want to move up the value chain.

• 19:34Speaker 07

  And I think they realize that some of these tariffs are also intended to help generate revenue and reduce the deficit. They understand that, they're just questioning how strategic it is.

• 19:44Joe Weisenthal?

  Well, let me ask you a question of the, on the question of what are we going to bring back in the United States, if anything? Just from your perch at Goldman, do you see any private money that's come into the US for fresh, sort of, I don't know, greenfield capital investment, either in something low margin or high margin, because the terrorists have changed the math and made that investment economical?

• 20:09Speaker 07

  So, I will say, there, yes is the answer. I, I think there are US companies that will do more on the margin manufacturing here. I've talked to overseas companies, including, I won't mention the name, but one contract manufacturer in China, they are building more in the United States. And so, the, the thing is, I don't know how long it will take, what the magnitude will be, but it, yes, it is happening. The, the flip side of that is, there are many companies in the US that benefited from access to lower-cost goods.

• 20:47Joe Weisenthal?

  Yeah.

• 20:48Speaker 07

  And I won't mention their name, but you can, you know some of them, and they are, their margins are being squeezed. And then I talked to a number of small businesses that don't have the leverage to manage these tariffs, and some of them will actually go out of business or considering it by the end of the year.

• 21:04Tracy Alloway?

  This is a little bit of an unfair question, but I'm gonna ask it anyway. If you had to, if you had to choose one right now, would you say that tariffs are more effective at bringing back manufacturing to the US, or more effective at raising income for the US government at a time when people are worried about the deficit?

• 21:22Speaker 07

  I think, we'll start with the second part. Tariffs raise revenue.

• 21:30Speaker 07

  But they slow growth. And so for every dollar of tariff revenue, you have to you have to accept you may give some back in a little bit lower growth. I think that trade is very much worth it. If you're bringing back high value added manufacturing. I don't know if it's such a good trade if you are pushing to bring back lower value added. I think this administration knows that, and I think they'll be more strategic. I think you can do both. I think you could level the playing field, get get a more tariff revenue or some level of tariff revenue. I think we were thinking they were going to be closer to 10% than 20%. I mean, the high teens is a little higher than we expected.

• 22:15Speaker 07

  And you can also, yes, on semiconductors and other strategic areas, you can redomicile those. I think the question is, you sure you want to go down the road of lumber and aluminum?

• 22:27Joe Weisenthal?

  Right.

• 22:28Speaker 07

  Or do you want to let Canada do it? Is that a good strategic trade? I I'm not sure.

• 22:33Joe Weisenthal?

  Since you mentioned it, why is the neutral rate of interest to the extent that we can form some educated guess as to what it is? Why is it so much higher than it was in, say, 2019, in your view?

• 22:47Speaker 07

  So the fact of the matter is, I think if you go way back in the Stone Age to 2019.

• 22:55Joe Weisenthal?

  It does seem like forever ago.

• 22:57Speaker 07

  It does. I think if we had not had COVID, I think at the right before COVID hit, the 10-year Treasury, I think it was in the neighborhood of maybe 1 and 3/4 to 2. The Fed funds rate was in the mid-1s. I think we would have inched our way up a little higher.

• 23:16Joe Weisenthal?

  We didn't know how good we had it. All those people were complaining, oh, yields are so low. And then now they all wish they could go back there.

• 23:22Speaker 07

  Yeah. Listen, the inflation rate today is stickier. Back in 19, it was probably 1 and 1/2, 1 and 3/4. I still think even then, the neutral rate, real rate, was 3/4 of 1%. So the neutral Fed funds rate back then, I think, was 2 and 1/2-ish. Today, it's closer to 3 and 1/2, but there's only one reason for that. The inflation rate's higher. If inflation got back down to 2, I think you'd see the neutral rate back down to 2 and 3/4.

• 24:06Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 24:48Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 25:30Speaker 10

  This is the Bloomberg Market Minute brought to you by Comcast Business. The markets faced plenty of challenges this year: rising energy costs, higher interest rates, pushback to massive artificial intelligence spending. But through it all, stocks keep breaking records, and some analysts think they still can with a focus on the fundamentals. Nadia Lovell is head of global equity strategy at UBS.

• 25:51Speaker 11

  Earnings has been good and continues to be good. And while, you know, we might be past the peak in earnings growth, we're not past the peak in earnings level.

• 26:00Speaker 10

  But others like Miller Tabak strategist Matt Maely say those challenges could eventually lead to a downturn.

• 26:06Speaker 12

  Whenever we see a significant rise in bond yields... Like we have and a significant rise in oil prices like we have. The stock market always or pretty much always ignores it for a while.

• 26:16Speaker 10

  And Wall Street may be starting to take notice. A recent Citigroup index shows more analysts cut rather than raise their earnings forecasts for corporate America for the first time in more than five months. That was the Bloomberg Market Minute brought to you by Comcast Business, one partner powering 90% of the Fortune 500 and millions of small businesses. When you add it all up, no one does business like Comcast Business.

• 26:43Tracy Alloway?

  Since you mentioned sticky inflation, there's one other thing that seems to be top of mind at the moment, which is Federal Reserve independence. And we should talk about that, but I guess we can get your thoughts on, you know, that specific idea in a second, but one thing that seems surprising so far is that we're having this debate about what happens to the Federal Reserve with what seems to be a more activist Trump administration that seems to want to have a heavier hand in monetary policy. We haven't really seen much, much response from the market. If you look at the long end, it doesn't seem like there's a big risk premium building there. What's going on?

• 27:20Speaker 07

  So I'll make two comments. So regarding political independence, let me just make sure I, I frame this. Regulatory policy at the Fed is not, underlying not politically independent. It hasn't been for a number of years. What do I mean by that? You get a new president, they pick a new head of supervision, and it's very much, has been influenced for the last many years by whoever's in office. The balance sheet, I would argue, is maybe a little bit in the gray area. On setting the Fed funds rate, though, the Fed has been politically independent. Why is the market, you said, well, not reacting more to this? I mean, the reality is the stock market likes the idea of lower rates.

• 28:05Speaker 07

  I think the thing, it's not that the markets aren't reacting. The stock market likes it, so it's starting now to take into account, makes the real acceleration you talked about more likely. The gold market is very much taking note of it, and gold is up more than 35% year to date. I see it's up another 1% today. So it has, and I actually think duration on the long bond while the 10-year is rallied because of slow growth, I still think we have an issue. We've got 37 trillion of debt to sell on our way to 40 trillion. I think that the bond market may pay, at the long end, will pay attention to how this current situation works out.

• 28:50Joe Weisenthal?

  What is going on? How much more gold talk is there these days than there were a few years ago?

• 28:57Speaker 07

  Well, I actually, I've gone back over, looked back over the last 50 years. When's the last time we got a rally in gold like this?

• 29:04Joe Weisenthal?

  Yeah.

• 29:05Speaker 07

  I think in the aftermath of the Great Recession, remember in the Great Recession, the Fed took its balance sheet from 800 billion to 4 trillion, okay, and stopped. And we started to run it down a little bit. In response to COVID, we went from 4 trillion to 9 trillion, and we authorized $6 trillion of extraordinary spending in a $27 trillion economy. And the GDP, the net debt to GDP went from mid 70s to over 100%. When you've got leverage in the United States, and to some extent in the developed world,

• 29:47Speaker 07

  getting much higher in response to COVID, that's where people start to look at gold, Bitcoin, other alternatives to paper currency, because they're worried that this leveraging is just keeping going on and on and on. And so it's understandable.

• 30:03Tracy Alloway?

  Wait, is it though? Because one of the weird tensions of our current market situation is we have U.S. stocks at all-time highs, but also gold making new records almost every week. It feels like those two things are incompatible, at least in the long run. You know, maybe we could do it for a few weeks or a few months, but someone's got to be wrong here.

• 30:25Speaker 07

  I spent a lot of time talking to big institutions and about asset allocation. I think, and this is our view also, we think there could be a re-acceleration into '26. We think the AI boom is for real. We think we're going to get a lot of productivity out of AI. Okay, that is a good environment for corporate earnings and for stocks. What we don't know is how successful we're going to be on bending the curve of debt to GDP. Are we going to run another $2 trillion deficit even with tariffs? Is it going to be higher? And in that regard, I think people can buy stocks and buy gold and be very careful about

• 31:09Speaker 07

  buying the 10-year and the 30-year Treasury. And I think that's kind of what we're seeing.

• 31:13Joe Weisenthal?

  Actually, I want to go back to your point about sort of globalization is happening with us or without us. There's a different approach to AI diffusion out of China than there is in the U.S. But when you go around the world, are the American providers of tech, whether it's cloud tech or whether it's Microsoft, et cetera, are they still, are they going to win, even if the U.S. isn't part of that globalization wave? Will U.S. tech still be part of the story? Because so much is riding on the ongoing earnings power of seven companies.

• 31:45Speaker 07

  So I'll make a general comment about U.S. companies generally. A typical CEO in the United States that runs a global company has probably been to Europe in their careers 75 times or more, and has been to Asia 75 times, has been to China multiple times, has built relationships, and has been doing it for years.

• 32:10Speaker 07

  And I think that's true of tech, no doubt. Uh, many of the tech leaders you see are overseas regularly. Our political leaders and and some of our leaders in certain governmental positions uh maybe have not been to China or overseas quite as much. And that's why you see during periods like this, the corporate world is continuing to chug along and build relationships globally, even though at at national level, we're sort of reorienting and trying to um bring more to the United States and in fact deglobalize. So we've got a kind of a dichotomy and it it's it stands in sharp relief.

• 32:54Speaker 07

  This is the same way even eight years ago where we withdrew from the Paris Climate Accord. Right. And yet companies in the United States from my to my eye did not slow down at all in trying to build lead certified buildings and focus on greenhouse gas emissions and sustainability.

• 33:13Tracy Alloway?

  You talked earlier about the difference between how China and the US, um the corporate sphere is actually using AI. When you're looking at the US and you're looking for signs that AI is actually having a definitive, you know, needle moving impact on US productivity, what are you looking for here? What are the signs?

• 33:31Speaker 07

  I'm looking for adoption in a broad set of industries because it it here's here's how this works. First, your company gets you to try it, okay? And you adopt it. Second thing you try is various use cases based on that adoption. And then third thing, you figure out which use cases work and which use cases don't work. We're kind of in that phase right now in the United States. When I say China's a little farther ahead, I think they've already tried and proven some of the use cases in more industry. We'll get there too, but but you'll know when we look back 10 years from now, my guess is. Maybe not as fast as other parts of the world. We will have gone through all that. We'll know which use cases work, which don't.

• 34:16Speaker 07

  We'll adopt them. We're going to get a lot more efficiencies. There may be as many or more jobs, but they're going to shift and we're going to have to redeploy people to where the open jobs are. But we have to go through that whole cycle. And I would say we're early, we're early in that.

• 34:32Joe Weisenthal?

  We just have a couple of minutes left. Here's something that's been on my mind a little bit lately that I would like your take on. How levered to the stock market is the real US economy? How much, when you look around, does it feel like things are dependent on these companies continuing to deliver year after year in positive asset returns?

• 34:50Speaker 07

  So it's a great question. So I would say the US is 75% a service economy. It is a very heavily consumer-driven economy. This is what makes our economy different from many in the world. And if you break down the consumer here, half the workers in this country, let's take it 80, 85 million, make $50,000 a year, are unlikely to have financial assets, have lost 25% plus purchasing power, and are struggling to make ends meet. They're spending every dollar they make, but if you're a business that serves them, you're seeing they're being very careful.

• 35:29Joe Weisenthal?

  Yeah.

• 35:30Speaker 07

  There's another 80, 85 million consumers, tend to be, I'm exaggerating, I'm generalizing, 55 and older, own their home, have financial assets, and they've made a lot of money in the markets, to your point, and they're spending because they're getting wealthier. And we've got a tale of two consumer groups. I think part of what this administration, I believe, is trying to do is help lift up this first group so that they can be more affluent and do better because right now we're very heavily dependent on this second engine.

• 36:03Joe Weisenthal?

  Right.

• 36:04Speaker 07

  Based on the stock market.

• 36:05Tracy Alloway?

  All right, I'm going to sneak in one more question and go back to where we started this conversation, which is on rate cuts. I know you said 50 basis point, probably not on the table, but your gut instinct, is this going to be the start of a rate cycle, a rate cut cycle that goes into the next year, 2026? Or is this something that, you know, maybe you get one rate cut, maybe you get two rate cuts, but it's not going to go on for much longer than that?

• 36:33Speaker 07

  I think it will be, if it's a cycle, it's going to be a halting cycle. What do I mean by that? Cut 25 in September, I think that's going to happen. Wipe the slate clean for the next six weeks. Fed meets every six weeks. Wipe the slate clean. Make sure that you're convinced still the labor market is weak. Check inflation. If it's continuing to be weak and inflation is least moderate, you may do another one. The issue I'm pointing out is, I don't think we have more room to get to neutral than 75 to 100 basis points. So, might we wind up doing two or three this year? Maybe. Are we going to wind up

• 37:13Speaker 07

  doing 150, 200 basis points? It means you would have to decide, which I don't see a justification for running a very stimulative monetary policy. And I think the Fed, as it's currently configured, will be enormously reluctant to be below restrictive or modestly restrictive as long as inflation's running above target.

• 37:36Joe Weisenthal?

  Rob Kaplan, thank you so much for doing this live.

• 37:39Speaker 07

  Thank you.

• 37:40Joe Weisenthal?

  Thank you so much.

• 37:54Tracy Alloway?

  So that was our episode with Robert Kaplan, recorded live onstage at the Future Proof Conference. I'm Tracy Alockway, and you can follow me at Tracy Alockway.

• 38:02Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our producers, Kermit Rodriguez at Kermit Arman, Dashell Bennett at Dashbot, and Cale Brooks at Cale Brooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have the daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 38:23Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we do these live episodes, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 39:13Speaker 13

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