Goldman's Kaplan on Fed's Warsh and AI Capex Boom

Summary

Robert Kaplan discusses the start of Kevin Warsh’s tenure as Fed chair, expecting a neutral tone and less forward guidance. He analyzes the inflation outlook, noting that lower oil prices help but are offset by structural forces from an historic AI-driven capital expenditures boom. Kaplan separates the boom into an inflationary infrastructure phase and a disinflationary AI adoption phase that boosts productivity and corporate margins, while warning the Fed must remain committed to its 2% target.

• Kaplan expects new Fed Chair Warsh to strike a neutral, not dovish, tone and to reduce forward guidance and predictions.
• Lower oil prices from the Strait of Hormuz reopening will help ease goods inflation and stop the bleed into other items.
• The US is in a historic CapEx boom driven by AI infrastructure, data centers, and power for compute, creating inflationary pressure on materials and labor.
• AI adoption is disinflationary, improving productivity, raising profit share, and keeping unit labor costs in check, supporting corporate margins.
• Kaplan warns the Fed must not accept a 3% inflation world, as it would devastate lower-income households, and should be ready to act if inflation stays sticky.
• The structural tension between inflationary CapEx and disinflationary AI adoption will challenge Fed policy, with Kaplan suggesting potential rate action by September if inflation doesn’t ease.