Kaplan on Rate Hikes, Warsh at Jackson Hole

Summary

Former Dallas Fed President Robert Kaplan discusses the economy, Federal Reserve policy, and markets. He describes a bifurcated economy with AI and infrastructure strength but housing, autos, and consumer softness, and says the Fed was right to hold rates in July. Kaplan also warns that long-end Treasury and global government bond yields face structural pressure from deficits and supply, while he favors stocks over bonds into next year on a broadening S&P earnings story tied to AI adoption.

• Kaplan says the economy is strong in areas tied to AI adoption and infrastructure, but sluggish in housing, autos, and low-to-moderate income consumer demand.
• He argues the Fed was right not to hike in July and would not have cut in December, preferring optionality into September.
• He cites the Iran war and oil price spike as factors raising headline inflation and contributing to rate hike discussion.
• He sees AI infrastructure as inflationary and AI adoption plus Chinese overcapacity as disinflationary.
• Kaplan says long-end Treasury and global government bond markets face structural supply and deficit pressure, not just Fed policy.
• He is more bullish on stocks than bonds into next year, citing broad S&P earnings and AI productivity use cases.
• He suggests Chair Warsh should add a few sentences at Jackson Hole to explain the July Fed decision.