Episode summary
The Inflation Debate That Will Shape the Fed’s Plans for Interest Rates | WSJ's Take On the Week
The Journal
· · 27 min · Hosts: Telis Demos, Miriam Gottfried · Guests: Rob Kaplan
Summary
Rob Kaplan argued that the tariff ruling was less disruptive than markets might have feared because the administration was prepared with replacement authorities and the net tariff burden may fall only modestly. He said the bigger macro driver for 2026 is strong GDP growth, helped by tax incentives, regulatory reform, and the AI data-center and power buildout, which Goldman Sachs expects could keep growth above 2.5%. On Treasuries, he said the market is balancing higher growth against lower deficits, leaving the 10-year “sticky” but orderly.
Kaplan also framed AI as a two-stage story: heavy infrastructure spending is stimulative now, while later adoption should raise productivity, improve margins, and be disinflationary over 2026 to 2028. He said investors are not abandoning risk assets so much as rotating within them, favoring “halo” or heavy-assets-low-obsolescence names such as McDonald’s, Walmart, ExxonMobil and Costco while reassessing software and other vulnerable sectors.
On deals and capital structure, he expects high merger activity to continue as companies seek scale and resilience, but with less leverage because disruption risk is higher. He said big hyperscalers can still handle debt because they remain outstanding credits, while smaller tech firms may need to de-risk. On housing, he supported a regulatory review that could free up bank capital and improve mortgage availability. For the March Fed meeting, he expects no move, saying the committee wants proof of disinflation before cutting again.
Key takeaways
- Kaplan expects Goldman Sachs GDP growth above 2.5% in 2026, helped by tax incentives, regulation and the AI infrastructure boom.
- He thinks the tariff ruling will only modestly change the fiscal and market picture because replacement tariff authorities were put in place quickly.
- He sees AI infrastructure spending as inflationary in the near term, but AI adoption as disinflationary through productivity gains in 2026 to 2028.
- He said investors are rotating within equities toward defensive “halo” stocks rather than fleeing risk assets altogether.
- He expects strong merger activity to continue, but with less leverage and more corporate-to-corporate deal making.
- He thinks the Fed should hold in March because inflation is still about 2 and 3/4% and policymakers want realized, not forecast, disinflation.
Notable quotes
“the market will settle itself down ultimately over all these changes and get accustomed to them”
“we're expecting very strong GDP growth in 2026”
“The infrastructure part is stimulative”
“what the market is trying to wrestle with is if there is widespread adoption”
How the episode opens
Fed has in the last five years had a couple of periods where it went out on the limb and made predictions. Uh transitory was an example and I think they got somewhat burned by it. — Hi Miriam. — Hi Telus.
Well it's going to be a big conversation because this week we've got a few topics to cover. We're going to talk about Wall Street deal making, some potential changes to the mortgage market, but we've also got well, we've got tariffs back on the brain. I know when we were doing this show a year ago, we were talking all tariffs all the time, and it feels a little bit like like Groundhog Day.
I don't know what's the what's the song from that movie, AIPA Got You, Babe. Uh I think we're experiencing some of that in the markets today. Tariffs are certainly once again the topic.
Dour. Uh and this week we're actually going to talk through uh all of our topics and all the big news in the markets with our guest. Uh listeners of this show might remember from last year.
He came he joined us to talk about the Fed last year, but once again we've got Rob Kaplan joining us. Rob, as you might remember, is a he's been at times an investment banker, uh a central banker, a professor. Nowadays, he's vice chairman at Goldman Sachs.
Rob, welcome to the show.
Great to be with you guys. The big news that's been out there um is, you know, this President Trump's tariffs or much of President's Trump tariffs as an illegal use of the president's trained powers. And was that what you expected?
Uh we knew it was a significant probability or possibility. I think the administration uh was well prepared for it also which is why uh you saw them immediately or pretty close to immediately move to extend new tariffs with different authorizations.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- tariff ruling
- bank regulation
- mortgage market
- fed rate outlook
- defensive stocks
Companies and tickers mentioned
- GS
- MCD
- WMT
- XOM
- Goldman Sachs
- McDonald's
- Walmart
- ExxonMobil
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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