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1:00

Hello and welcome to another episode of

1:02

The Odd Lots podcast. I'm Joe Weisenthal.

1:04

And I'm Tracy Holloway. Tracy, there are

1:06

many dimensions of the ongoing market turbulence and

1:08

trade tensions that we can't stop talking

1:10

about. But a big one, and in a

1:13

way, it's almost like people aren't talking about

1:15

it that much right now because there's so

1:17

many other things top of mind, a lot

1:20

of questions about how the Fed is going

1:22

to think about what's happening right here.

1:24

Right. And I know... it's probably

1:26

not very popular to sympathize with

1:28

the central bank but I gotta

1:30

say I would I would hate

1:32

to be Jerome Powell right now

1:34

because in my mind the consensus

1:36

right now seems to be that

1:38

we're heading for some sort of

1:40

stagflationary scenario at least in the

1:42

short to intermediate term so higher

1:44

inflation lower growth possibly even recession

1:46

and that to me just seems

1:48

like a nightmare scenario for a

1:50

central bank which constantly has to

1:52

balance its twin mandate of price

1:55

stability and low unemployment. It's

1:57

really tricky right because we've sort

1:59

of been used to environments where it's

2:01

really obvious, right? So in 2022, 2023,

2:03

it was clear that they were missing

2:05

on one specific side, which was the

2:08

price. for much of, you know, post-2007

2:10

or 2008, the story was we growth,

2:12

disinflation, whatever, so poor employment. I mean,

2:14

this is gonna be tricky. And look,

2:16

when we're talking about restructuring the global

2:19

economy or the internal economy, these are

2:21

questions that there is a limit to

2:23

the degree to which monetary policy could

2:25

solve them. Oh, yeah. They can maybe,

2:27

you know, maybe things out a little

2:29

bit, but at the end, these aren't

2:32

really monetary policy questions we're talking about

2:34

here. Right, and I think we all

2:36

internalized that lesson in the 2020 pandemic,

2:38

right? We saw all these real world

2:40

disruptions, supply chain issues, and that gave

2:43

rise to the infamous transitory inflation, as

2:45

the Fed called it. And it seems

2:47

very much like that's a possibility again,

2:49

right? totally and like we've been saying

2:51

we've been going back to talking to

2:53

all the world supply chain guests because

2:56

you know the whole world may be

2:58

redrawn anyway we're recording this after the

3:00

market closed it's April 8th 2025 it's

3:02

409 p.m. we just had another crazy

3:04

day in the market, 500, ended down

3:07

1.57 percent it had been up over

3:09

4% at one point so we continue

3:11

to whipsaw anyway I'm excited to say

3:13

we really do have the perfect guest

3:15

someone we've had actually on the show

3:17

once before we are going to be

3:20

speaking with Rob Kaplan. He is a

3:22

vice chairman of Goldman Sachs, member of

3:24

the management committee. Prior to that he

3:26

was the president and CEO of the

3:28

Federal Reserve Bank of Dallas. Prior to

3:30

that he had been Harvard and prior

3:33

to that he had been at Goldman

3:35

Sachs. Truly the perfect guest for right

3:37

now. Rob Kaplan, thank you so much

3:39

for coming back on Outlaws. Thanks for

3:41

having me. Good to talk with you.

3:44

Tracy said she wouldn't want to be

3:46

Jerome Powell. I would still take their

3:48

job, but I'm just let's start. You're

3:50

on this. Let's say you know, this

3:52

is all happening a few years ago

3:54

and you're still at the Fed. How

3:57

stressful is this kind of environment for

3:59

charting a course for monetary policy? Well,

4:01

the last time we had a tariff

4:03

issue, you got to go back to

4:05

2019. I was at the Fed at

4:08

the time. And you may recall, we

4:10

preemptively cut the Fed funds rate

4:12

three times. I think we called

4:14

it a tactical recalibration or

4:16

something like that. And the

4:19

reason we were able to

4:21

be preemptive is we didn't

4:23

have an inflation issue. So

4:26

we could afford to be

4:28

preempted. As we're sitting here

4:30

today, the Fed goes into

4:32

this already before the

4:34

tariff situation with an

4:36

inflation issue and that

4:38

inflation is sticky. Now

4:40

the irony going into this,

4:43

the source of the sticky

4:45

inflation has been services, not

4:47

goods. Goods have been disinflating

4:50

up to now, up until

4:52

say two months ago or

4:54

a month and a half

4:56

ago, and China overcapacity has

4:59

said that disinflation. But despite

5:01

that, you know, we're hanging

5:03

around two and a half,

5:06

two and three quarters on

5:08

the PCE, and I would

5:10

argue that the excess inflation

5:12

has been more about

5:15

excess demand due to...

5:17

outsized fiscal spending.

5:19

So we are now in a

5:21

new administration where they are

5:23

dialing down fiscal spending. So

5:26

that excess demand is being

5:28

pulled away, you would normally

5:31

consider that disinflationary. But

5:33

now we've got a

5:35

supply shock issue related

5:37

to tariffs, which relates ironically to

5:39

goods, not services. And so

5:41

the most important thing the

5:43

Fed is thinking right now

5:45

is we don't have to

5:48

have this figured out because

5:50

we can't have it figured

5:52

out. If anything they learn

5:54

from the transitory episode, don't

5:56

try to jump ahead to predict

5:58

things that you can't know. I think

6:00

they're going to sit back, let

6:02

the situation unfold, and try to

6:05

understand it, and they're going to

6:07

be more reactive, not proactive. And

6:09

I think that will be the

6:11

difference. You know, I mentioned stagflation

6:14

before, which seems to be becoming

6:16

the consensus economic environment that everyone

6:18

is talking about. What's the playbook?

6:20

I guess the traditional playbook for

6:23

a central bank that's starting or

6:25

trying to battle stagflation. You know,

6:27

I'm thinking back to the 1970s,

6:29

maybe Volker. He raised rates really

6:32

aggressively and ultimately he was willing

6:34

to sacrifice employment in order to

6:36

get inflation down. Is there like

6:38

a normal playbook that central bankers

6:41

can follow here? Not really in

6:43

this case, in that you're right

6:45

in the 70s, we had a

6:48

situation where we had slowing growth

6:50

and an inflation issue. One of

6:52

the things I would say about

6:54

this situation, I think you have

6:57

to assess it for what's driving

6:59

it. What are the structural drivers?

7:01

And I think that we have

7:03

a lot of uncertainty. You have

7:06

government spending cuts. You have a

7:08

dramatic reduction in immigration. and shutting

7:10

down the border, which normally would

7:12

slow growth and might actually create

7:15

some stickiness in the labor force.

7:17

And then you've got these tariff

7:19

issues, but the issue with the

7:22

tariff situation is it's in flux.

7:24

You had the announcement last week

7:26

on Wednesday, and it's still very

7:28

unclear how much is the administration,

7:31

our administration, willing to negotiate? How

7:33

much is this really about reciprocity?

7:35

And I think honestly how much

7:37

of this is about the administration

7:40

might want to create more revenue

7:42

and tariff revenue and actually while

7:44

country. may come back to us

7:46

and say we'll go down to

7:49

zero and remove non-trade barriers I

7:51

think we're going to find out

7:53

how willing our administration is to

7:56

in fact negotiate yeah or how

7:58

much do they actually want higher

8:00

tariffs to keep the revenue and

8:02

so all those things are going

8:05

through the Fed's mind and so

8:07

we don't know and so I

8:09

think you just have to be

8:11

patient Don't be a prognosticator, be

8:14

a risk manager, allow this situation

8:16

to clarify. Well, let me ask

8:18

you a question. I mean, you

8:20

must talk all the time to

8:23

both investors and to real businesses

8:25

of various sorts. Right now, when

8:27

we're talking on April 8th, do

8:29

you think there is still some

8:32

belief? that this can't be what

8:34

the final tariff schedule looks like.

8:36

Whatever it ends up being, maybe

8:39

negotiations, etc. that the idea that

8:41

no, these numbers that were unveiled

8:43

on that chart on April 2nd,

8:45

they can't really be what the

8:48

new trading relationship with the rest

8:50

of the world is going to

8:52

look like. Okay, so let's talk

8:54

about both groups, businesses and then

8:57

capital allocators and investors. I think

8:59

there's a hope, there has been

9:01

a hope by both that yes,

9:03

this was more about reciprocity and

9:06

there was going to be a

9:08

negotiation. And so this isn't where

9:10

we're going to end up. I

9:13

think one of the reasons why

9:15

the market is behaving in the

9:17

way it is, I think businesses.

9:19

are still hopeful that this will

9:22

be a negotiation, but they're not

9:24

sure about that, and they're starting

9:26

to make plans on how they're

9:28

going to adjust. And there's a

9:31

series of things they could do.

9:33

They're already talking about pressuring suppliers

9:35

to cut prices. They're talking about

9:37

potentially... taking some of this out

9:40

of margin there were hoping up

9:42

to now that maybe the dollar

9:44

would strengthen and then the other

9:46

thing they're talking about is pricing

9:49

but they're in the middle of

9:51

trying to figure that out they

9:53

are not as much as you

9:56

would hope actively talking about expanding

9:58

capacity here. because they're concerned that

10:00

something they build here is globally

10:02

competitive and you don't want to

10:05

build a high-cost facility that only

10:07

is competitive because of a tariff

10:09

mode. So that's where they are.

10:11

They're treading water and trying to

10:14

be receptive and figure this out

10:16

and giving their views to the

10:18

administration. Capital allocators, on the other

10:20

hand, started the year wanting to

10:23

be long the dollar, dollar-denominated-nominated assets.

10:25

And what's happened is they have

10:27

been moving on the margin away

10:30

from the dollar and you're even

10:32

seeing in the last week that

10:34

some dollar weakness, tenure treasury backing

10:36

up as opposed to rallying. which

10:39

you would normally expect to see,

10:41

and you're seeing a move, I

10:43

think, not between asset classes, you're

10:45

seeing a move away from dollar-denominated

10:48

assets. That is extremely unusual. And

10:50

again, they're doing it to hedge

10:52

their bets, depending on what the

10:54

administration is trying to accomplish. I

10:57

wanted to ask you about exactly

10:59

this. You mentioned earlier, don't be

11:01

a prognosticator, be... a risk manager

11:04

and that sounds like we should

11:06

make like inspirational posters with like

11:08

little kittens hanging from trees with

11:10

that text below but on this

11:13

note one of the reasons this

11:15

market move is particularly painful is

11:17

not just because it's very very

11:19

big a big downward shift, but

11:22

also we're seeing bonds sell off

11:24

at the same time. And I

11:26

think we've moved from like just

11:28

under 4% on the 10 year

11:31

to something like almost 4.3% now.

11:33

Again, that's happening while stocks are

11:35

selling off, which is something you

11:37

wouldn't expect to see normally. I

11:40

have seen all sorts of explanations

11:42

for why this might be happening.

11:44

I've seen people talk about, well,

11:47

maybe investors are liquidating what they

11:49

can sell in the current environment,

11:51

not necessarily what they want.

11:53

And then secondly,

11:56

maybe it's the

11:58

basis trade being

12:00

unwound. Thirdly, maybe

12:02

it's investors shifting

12:05

away from US

12:07

assets altogether. Where

12:09

do you sort of lie

12:11

on that spectrum of reasons? Like

12:14

what is the mix for

12:16

why exactly yields are going up

12:18

right now? So we're seeing

12:20

all those potential explanations. I think

12:22

the truth is we're not

12:25

sure. There's certainly been comments in

12:27

the market and we've seen

12:29

inflows about the unwinding of the

12:31

basis trade you referred to.

12:33

We're seeing among some asset allocators

12:36

a desire to reallocate and

12:38

rebalance their dollar exposures to other

12:40

markets. And I think the

12:42

most insightful thing I can say,

12:44

certainly if I'm at the

12:46

Fed and sitting here at Goldman

12:49

Sachs, the only thing we

12:51

can all agree on is something

12:53

we are watching very carefully,

12:55

because it's a concern for a

12:57

country that has a, let's

13:00

say, $36, $37 trillion of treasury

13:02

debt outstanding and growing by

13:04

at least $2 trillion a year.

13:06

It's very critical that we

13:08

are able to market our debt.

13:10

We've struggled over the last

13:13

few years to sell duration and

13:15

that we've tried to front -end

13:17

load it, but it's critical

13:19

for a country with debt to

13:21

GDP, 100 % plus you want

13:24

to be able to market

13:26

your debt. You want confidence in

13:28

what we're doing here. And

13:30

I think it bears watching. And

13:32

certainly if I were at

13:35

the Fed, I'd be watching that

13:37

very carefully. KPMG

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13:57

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register at Bloomberg. You've

14:59

had a very long career and

15:02

Joe his intro for you included

15:04

many titles many hats over your

15:06

your history as a financial market

15:09

veteran Have you ever seen anything

15:11

like this? I think that normally

15:13

what you're accustomed to in a

15:15

week like this last week you

15:17

would normally see a flight to

15:20

quality you would see treasuries rally

15:22

and you would eventually start

15:24

to get a better grip

15:26

on what's going on. Obviously,

15:28

COVID was a good example

15:30

of enormous uncertainty that took

15:33

a while to resolve. It's

15:35

been unusual in my career

15:37

to see a government-led action,

15:39

as opposed to an external

15:42

shock, a government-led action, i.e.

15:44

man-made, that has in turn...

15:46

created this kind of uncertainty

15:48

the good thing about this

15:50

kind of situation if it's

15:52

man-made that created the uncertainty

15:54

it can also be susceptible

15:56

to man-made actions that will

15:58

address the answer And I think

16:00

that's what people in the market are

16:02

hoping for. Do you worry that they,

16:05

I mean, this has come up and

16:07

it's certainly true, right? Because at any

16:09

given moment, Trump could say, no, we're

16:11

taking this back, but this is his

16:13

life mission. Or we're doing some pause

16:15

and we saw the sort of incredible

16:17

rally Monday on a fake headline about

16:19

the pause, tells you something about the

16:21

environment. But what the president can't

16:24

do is on ring the bell, because

16:26

he can't really credibly. say he'll never

16:28

do this again, right? Like do

16:30

you worry that like this is

16:32

going to permanently change America's economic

16:35

relationship with every country in the world?

16:37

Yeah, I just got back from Europe.

16:39

Yeah. There are certainly yes, our strains

16:41

around the world. Yeah. And yes, those

16:44

bear watching. Having said that, I do

16:46

believe that there's a great

16:48

opportunity to get this puzzle right.

16:50

and make this work. But yes, there

16:52

is some cost to what's happened up

16:55

to now, but I still think this

16:57

can get resolved, but it's going

16:59

to require some action on our

17:01

part in order to do that. And

17:04

I think the markets. in their up

17:06

and down reaction today, they're

17:08

just not sure how imminent

17:10

that is and whether that's

17:12

going to happen. And so

17:14

you're seeing this uncertainty prevail

17:17

in the markets. The problem

17:19

with uncertainty going on for

17:21

too long is it slows activity.

17:23

If I'm a consumer thinking about

17:25

taking an action, I might pause

17:28

it. If I'm, I can tell

17:30

you talking to companies. They're not

17:32

saying no, but they're saying not

17:34

now. They have already had other uncertainties

17:36

they're dealing with in their business,

17:38

how to approach AI, which use

17:41

cases for AI spending will work.

17:43

They have other issues that they're

17:45

always wrestling with, and I think

17:47

all this does is cause them

17:49

to be more careful, pause actions

17:51

they might have otherwise taken, and

17:53

I don't think you want that

17:55

to go on indefinitely. I'm just

17:57

going back to the Fed for a

17:59

second. And what's the pain threshold

18:01

for the central bank in terms

18:04

of movements in the financial market?

18:06

Like how bad does it need

18:08

to get before maybe they start

18:10

rolling out some tools to try

18:12

to calm things down? All right,

18:14

so at the Fed back the

18:17

headline, what I'm worried about is

18:19

full employment and price stability. Stock

18:21

market going down substantially. does not

18:23

by itself necessarily cause me to

18:25

do anything other than I'm aware

18:28

of it. Credit spreads beginning to

18:30

gap out, gets my attention more,

18:32

because I'm concerned that that in

18:34

fact would be an amplifier of

18:36

a potential slowdown, i.e. Businesses might

18:39

not fire people because their stock

18:41

is down, but they might start

18:43

to if they see their business

18:45

slowing and credit spreads widening and

18:47

they're worried about. financeability. So I'm

18:49

watching that, still not acting. Normally,

18:52

if you see a potential demand

18:54

shock and the soft data, which

18:56

is what we're seeing, weakened, but

18:58

the hard data is still hanging

19:00

in there, you might start thinking

19:03

if you didn't have an inflation

19:05

issue, you might think about taking

19:07

some action, but the Fed does

19:09

have an inflation issue. And so

19:11

I think you'll see the Fed

19:14

as we said. be more reactive

19:16

until you're clearly seeing evidence that

19:18

there is a slowing and you're

19:20

going to want to see it

19:22

the Fed to act more than

19:25

just in inching up in the

19:27

unemployment rate. You start seeing a

19:29

much more dramatic move up and

19:31

then you're going to realize that

19:33

we could be entering into a

19:35

demand shock. which would actually be

19:38

disinflationary, which might offset part of

19:40

this supply shock. And that's where

19:42

you'd see the Fed be more

19:44

willing to act. But it's going

19:46

to be at least a period

19:49

of time. It's not the May

19:51

meeting. I think they're going to

19:53

watch it very carefully and I

19:55

think... as soon as you might

19:57

see that materialize would be into

20:00

June and over the summer. The

20:02

only other thing I'll mention that

20:04

I'd be watching for very carefully

20:06

at the Fed is you want

20:08

to make sure there's orderly market

20:11

function and particularly orderly treasury market

20:13

function. And again, as long as

20:15

that's the case, I think the

20:17

Fed will watch all these things

20:19

I just said, but be patient

20:21

and they're going to want to

20:24

see real hard evidence. of the

20:26

slowing before they took an action.

20:28

And the reason is they don't

20:30

want to jump. The tariff situation

20:32

gets resolved and at the aftermath,

20:35

we still have an inflation issue

20:37

and they regret that they've jumped

20:39

into it and cut the rate.

20:41

I think they're going to need

20:43

to be more reactive, which does

20:46

mean that by the time they

20:48

move, you know, normally say they're

20:50

going to be on maybe that

20:52

you could be accused of being

20:54

late, but I think they're willing

20:56

to take that risk. Let's pivot

20:59

a little bit. Tracy wrote about

21:01

something last week or maybe it's

21:03

two weeks ago my brain is

21:05

getting fried so I don't have

21:07

any concept of time anymore. The

21:10

Dallas Fed's energy survey which I

21:12

think comes to a quarterly unlike

21:14

the manufacturing service. It's just unbelievable

21:16

stuff in there and this is

21:18

from an industry which we all

21:21

know tends to be you know

21:23

probably pretty sympathetic to the current

21:25

administration politically. they're talking about uncertainty

21:27

like they've never seen they've talked

21:29

about the increased cost of all

21:32

of their parts for drilling right

21:34

I mean it was like kind

21:36

of apocalyptic and that was actually

21:38

before the last week and a

21:40

half one of the things in

21:42

Besson's three three three plan was

21:45

getting three million more barrels of

21:47

oil drilled and expanding energy dominance

21:49

meanwhile WTO just falling to his

21:51

lowest level of four years in

21:53

part because OPEC is turning on

21:56

the gushers in part because these

21:58

recession firms Tell us what's going

22:00

on down there in the energy

22:02

patch. So we started the Dallas

22:04

Fed Energy Survey when I was

22:07

running the Dallas Fed. We did

22:09

it particularly for this. reason. We

22:11

wanted to get a grip on

22:13

what were break even levels. At

22:15

what levels are you profitable? At

22:17

what prices are you more likely

22:20

to drill? And what we're seeing

22:22

is the following. Four years ago

22:24

when the industry heard drill baby

22:26

drill they would be they were

22:28

very excited about that. I think

22:31

over the last three or four

22:33

years they have been drilling subject

22:35

to cash flow. They've been pressured

22:37

by shareholders. to return more capital

22:39

and cost to drill have gone

22:42

up and tariffs will increase cost

22:44

to drill more. And so the

22:46

industry will drill at one level

22:48

if the price is $80, but

22:50

it's going to drill at a

22:53

lower level all things being equal

22:55

if prices get into 50s or

22:57

60s. And so I think we

22:59

may well find over this next

23:01

year that actually the level of

23:03

drilling activity doesn't increase. and I

23:06

think people who are drilling are

23:08

going to be more careful, particularly

23:10

as the prices come down. You

23:12

see OPEC. I think the US

23:14

may have more success pressuring OPEC

23:17

and Saudi Arabia to produce more,

23:19

and we will in this country

23:21

make it easier to permit a

23:23

refinery, will make it easier to

23:25

build transmission. So I think the

23:28

price will come down, is coming

23:30

down, and may stay down, but

23:32

it may not be because of

23:34

more US drilling. and maybe because

23:36

of demand falling off because of

23:38

concern about tariffs and also because

23:41

OPEC actually producing more probably under

23:43

some influence from the Trump administration.

23:45

I'm looking at a chart of

23:47

the Baker Hughes oil and gas

23:49

rig count right now and it's

23:52

kind of funny I guess we'll

23:54

take what we can get nowadays

23:56

but it went up in 2021

23:58

and 2022 quite a lot under

24:00

the Biden administration and since I

24:03

guess For most of 2024, it's

24:05

kind of been flatlining. And in

24:07

fact, Joe, the energy survey that

24:09

I wrote up I think the

24:11

headline on our newsletter was instead

24:14

of drill baby drill it was

24:16

nil baby nil right because there's

24:18

no new oil and gas rigs

24:20

actually getting built and not much

24:22

more production coming on stream. That's

24:24

right and you're seeing the reason

24:27

for that trend you just described

24:29

is prices were higher in 21

24:31

and 22 that led to more

24:33

drilling. As prices moderate and they're

24:35

actually lowering now, I think you'll

24:38

see more tepid activity as you

24:40

just described. And in terms of

24:42

your experience at the Dallas Fed,

24:44

I wanted to ask you because

24:46

you were there, I think it

24:49

was... 15 through 21. Thank you.

24:51

Thank you for doing my research

24:53

for me. But that included 2018

24:55

when we saw the tariffs under

24:57

the first Trump presidency. That's right.

24:59

What was your experience like then?

25:02

And what lessons or surprises did

25:04

you encounter at that time? So

25:06

Texas is a very large exporting

25:08

state and we did an enormous

25:10

amount of work at the Dallas

25:13

Fed on the impact of tariffs.

25:15

And I probably in those years

25:17

read every tariff paper. that I

25:19

could get my hands on and

25:21

what I what we concluded and

25:24

me and my team concluded is

25:26

tariffs could have some price impact

25:28

but the biggest impact we saw

25:30

of tariffs is of the potential

25:32

of they had to slow growth

25:35

and so as a result of

25:37

it you may remember back in

25:39

18 and 19 I said I

25:41

think we should be more proactive

25:43

here lower rates and that if

25:45

you wait to see the weakness

25:48

to see the weakness in GDP

25:50

and employment, you've waited too late.

25:52

And the thing is, I had

25:54

the luxury of being able to

25:56

argue that in those years because

25:59

we did not have an inflation

26:01

issue. All right, so clearly there

26:03

is a lot going on. Some

26:05

of it in many ways very

26:07

unprecedented. What are you looking out

26:10

for next in terms of not

26:12

just the impact on the Fed

26:14

and how... this might influence their

26:16

immediate monetary policy path, but also

26:18

in terms of the sort of

26:21

big structural trends of the global

26:23

macro economy, of geopolitics, you name

26:25

it. Yes, so they're including tariffs,

26:27

there are five big structural changes

26:29

going on right now. We've already

26:31

hit on the number one is

26:34

we are attempting to reduce fiscal

26:36

spending with the desire and obviously

26:38

it's been to try to reduce

26:40

the current six and a half

26:42

seven percent of GDP deficit to

26:45

something lower than that. We've gone

26:47

from 2019 to today debt to

26:49

GDP in the United States net

26:51

approximately in the mid 70s to

26:53

over 100 percent and so first

26:56

structural changes tried to have a

26:58

an economy that is less fiscal

27:00

spending led and more private sector

27:02

led. That's number one. Fiscal spending

27:04

reductions though, slow growth, might in

27:06

fact be disinflationary, but that's the

27:09

first one. Second one is regulatory

27:11

review in every industry with the

27:13

ambition of improving productivity growth. In

27:15

an aging country that is highly

27:17

leveraged, the X factor that can

27:20

help you deal leverage is productivity

27:22

growth. The issue with regulatory review

27:24

is they'll take some time for

27:26

that to translate into greater growth,

27:28

and that's the issue. It'll be

27:31

a time lag. Third big change,

27:33

which we've talked about is I

27:35

would say a restructuring of the

27:37

energy ecosystem, encouraging drillers here. We

27:39

just talked about to drill, although

27:42

they're going to be more reluctant,

27:44

but then encouraging Saudi Arabia. and

27:46

others to produce more. And additional,

27:48

be easier to permit a refinery,

27:50

easier to create transmission. And the

27:52

idea is to help low-modered-income families

27:55

here visibly. lost 25% plus purchasing

27:57

power to allow them to pay

27:59

a lower price at the pump

28:01

and for power. The fourth big

28:03

one is two big drivers of

28:06

US excess GDP over the last

28:08

three or four years. One I

28:10

would argue was excess fiscal spending.

28:12

And then the second was immigration

28:14

and labor force surges due to

28:17

some percentage of undocumented immigrants entering

28:19

the workforce. That obviously has ended.

28:21

workforce growth will decline this year

28:23

from previous years and there are

28:25

millions of undocumented immigrants in the

28:27

country who are uncertain of their

28:30

status. and they make up half

28:32

the construction workforce in a state

28:34

like Texas. They make up a

28:36

chunk of the agricultural workforce and

28:38

other workers in the service sector.

28:41

And what I'm hearing from employers

28:43

is some number of those workers

28:45

are not showing up at work

28:47

because they're concerned about an ice

28:49

raid and they're concerned about their

28:52

status. They're certainly not spending. And

28:54

I think there's going to be

28:56

a question as we go here.

28:58

Do we want to clarify, does

29:00

the government want to clarify, how

29:03

far they want to go here

29:05

so those people can get back

29:07

to their lives? But the jury's

29:09

out on that. And then the

29:11

last one we just talked about

29:13

is tariffs, which has created all

29:16

the impacts of potentially stickier prices,

29:18

which is a supply side shock,

29:20

but also is likely based on

29:22

our work. is likely to slow

29:24

growth. So that's the package of

29:27

things going on. And so the

29:29

question then with all that is

29:31

one thing if growth slips from

29:33

what it might have been two

29:35

and a quarter, two and a

29:38

half percent, we thought some number

29:40

of weeks ago to say one

29:42

and a half, one and three

29:44

quarters, but you now have our

29:46

own economist and other economists are

29:48

now suggesting that growth is going

29:51

to slip well below that, approaching

29:53

zero or half of one percent.

29:55

and if these tariffs continue, those

29:57

estimates may even get revised down,

29:59

you've got a risk of a

30:02

meaningful slowdown and growth. Again, it

30:04

doesn't have to unfold this way,

30:06

but a lot of it is

30:08

going to be a function of

30:10

what actions are taken here over

30:13

the next days and weeks. Robert

30:15

Kaplan, you know, when we scheduled

30:17

this episode several weeks ago, I

30:19

didn't think we realized it would

30:21

be quite such interesting times, but

30:24

this was the perfect timing, perfect

30:26

guest. Thank you so much for

30:28

coming back on Odds Lodge. That

30:30

was great. Great to talk with

30:32

you. Tracy,

30:45

that was great. I, like I said,

30:47

the end, didn't quite realize how much

30:49

there would be to talk about, you

30:52

know what I think. You should have

30:54

said that. You should have just been

30:56

like, yeah, we were thinking about what's

30:58

going on in markets and we had

31:00

Rob Kaplan on speed dial and he

31:03

was, we knew he was the perfect

31:05

person. You know what Tracy, that tenure

31:07

yield, 4.28, it was at four on

31:09

the fourth, so on Friday. Yeah. That's

31:12

a crazy chart. That's an ominous chart.

31:14

That's an ominous chart. You know what

31:16

worries me more. I'm looking at swap

31:18

spreads right now. Oh yeah. It's never

31:20

a good sign when you start seeing

31:23

headlines about swap spreads. Like these are

31:25

supposed to be relatively boring and they're

31:27

not boring right now. So wait, what's

31:29

going on in swap spreads? So they're

31:31

dropping quite a lot and I guess

31:34

the speculation is whether or not that

31:36

has to do with hedge funds unwinding

31:38

that basis trade that we mentioned. It's

31:40

really funny also thinking that, you know,

31:43

I had totally forgotten basically until right

31:45

during that conversation, that 3-3-3-3-Bescent thing, which

31:47

just seems like such old new. The

31:49

idea is like, okay, we're gonna modestly

31:51

decrease the deficit over time. It doesn't

31:54

come up that much anymore. We're gonna

31:56

have 3% GDP growth. It's like, man,

31:58

they really just took a, they really.

32:00

did not go with that approach, did

32:03

they? To say the least. No. No,

32:05

they did not, Joe. Here's a question.

32:07

Do you still want to be Fed

32:09

Chairman? I would take it. If you

32:11

become Fed Chairman, will you come on

32:14

my solo all-thought show and talk to

32:16

me? It would be fun if you

32:18

go, oh, it's so great to reunite

32:20

with you. Tracy, I got a new

32:22

job, but it's always fun to come

32:25

back and check out and check out.

32:27

Yes, I'll do that. I'll leave it

32:29

I would even be a regional Fed

32:31

president. Can you can listeners tell that

32:34

we're totally fried? I wonder like yeah

32:36

our our banter yeah is is not

32:38

great at the moment but okay should

32:40

we leave it there on the note

32:42

that we cannot ban her any longer

32:45

all right This has been another episode

32:47

of the Authos podcast. I'm Tracy Allaway.

32:49

You can follow me at Tracy Allaway.

32:51

And I'm Joe Wisenthall. You can follow

32:54

me at the stalwart. Follow our producers.

32:56

Kermin Rodriguez at Carmen Armon. Show Bennet

32:58

at Dashbot and Kale Brooks at Kale

33:00

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33:02

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33:36

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33:53

Yeah.

34:02

You