Former Dallas Fed Pres. Kaplan: The Fed won't cut rates until they see improvements in inflation

Summary

Rob Kaplan discusses the Fed's rate outlook, saying the Fed has already cut to neutral and will only cut further once inflation improvement is visible, though he expects improvement and more cuts this year. He sees a firming labor market and stronger GDP growth, supported by tax incentives and the AI infrastructure boom, while Chinese overcapacity and AI productivity are longer-term disinflationary forces. He also comments on the Fed chair search, expecting the next chair to face a higher bar to demonstrate political independence.

• Kaplan says the Fed cut 75 basis points last fall to protect the labor market despite sticky inflation.
• He views the Fed as near neutral and says further cuts require visible inflation improvement.
• He expects inflation improvement and more cuts this year, but not preemptive action.
• He expects GDP growth to firm to around 2.5%-2.75%, with tax incentives and AI infrastructure supporting activity.
• He expects the labor market to firm rather than cyclically slow, though structural matching issues remain.
• He sees Chinese and global manufacturing overcapacity and AI productivity as disinflationary forces.
• He expects the Fed chair search to resolve, with the new chair needing to show independence from political pressure.