Kaplan Urges Flexibility from Fed Ahead of September Rate Decision

Goldman Sachs analyst Robert Kaplan has urged the Federal Reserve to remain flexible in its monetary policy decisions, particularly ahead of its September meeting. According to Kaplan, a former president of the Dallas Fed, the Fed's decision to hold interest rates steady in July was 'absolutely correct.' However, he cautioned against locking into a predetermined policy path given the increasingly complex forces shaping the inflation outlook.

Kaplan emphasized that the inflation landscape can no longer be assessed through a single indicator. He said the Fed must weigh employment, energy prices, productivity, and trade policy together when determining the future rate path. The analyst highlighted that artificial intelligence is exerting pressure in both directions on inflation. Strong investment in AI infrastructure, tariffs, labor supply constraints, and rising oil prices could push inflation higher, while broader AI adoption may boost productivity, reduce operating costs, and accelerate the disinflation process.

Kaplan also pushed back on the view that the rise in long-term US Treasury yields was directly caused by Fed policy. He argued the move reflects a more structural supply-demand imbalance driven by persistently high US budget deficits, which creates upward pressure on long-term yields independent of the central bank's short-term rate decisions.