Odd Lots Rob Kaplan on How the Fed Will Think about the Tariffs
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Apr 10, 2025 
Rob Kaplan, Vice Chairman of Goldman Sachs and former President of the Federal Reserve Bank of Dallas, dives into the Fed's complex balancing act amid current economic turmoil. He discusses the impact of new tariffs on global markets and the looming threat of recession. With markets reacting paradoxically, Kaplan emphasizes the Fed's cautious approach to monetary policy in a landscape riddled with uncertainty. The fluctuating Treasury yields and challenges in the energy sector add further layers of complexity, making for a riveting analysis of today's economic climate.
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Current Inflation Challenges Fed Response
- The Fed's 2019 tariff response involved preemptive rate cuts due to low inflation.
- Current inflation, driven by services and excess demand, complicates the Fed's response to new tariffs on goods.
Unique Drivers of Current Economic Uncertainty
- Unlike the 1970s stagflation, the current situation has unique drivers like government spending cuts and reduced immigration.
- Tariff policy uncertainty further complicates the situation, making it hard to predict the final outcome.
Businesses and Investors React to Tariffs
- Businesses hope for tariff negotiations but prepare for adjustments like pressuring suppliers and pricing changes.
- Investors, unusually, are shifting from dollar-denominated assets, creating uncertainty in the Treasury market.