Rob Kaplan on How the Fed Will Think about the Tariffs | Odd Lots

This episode explores the complexities of the current economic climate and the challenges faced by central banks in navigating market turbulence and trade tensions, particularly concerning the impact of tariffs. Against the backdrop of a potential stagflationary scenario—higher inflation coupled with lower growth—the hosts interview Rob Kaplan, a former Federal Reserve Bank of Dallas president, to gain insights into the situation. More significantly, the discussion delves into the uncertainty surrounding recently implemented tariffs and their unpredictable effects on businesses and investors. For instance, businesses are grappling with increased costs and are hesitant to expand capacity due to the volatile trade environment, while investors are shifting away from dollar-denominated assets. As the discussion pivoted to the Federal Reserve's response, Kaplan emphasizes a reactive rather than proactive approach, highlighting the need for careful observation of market indicators like credit spreads before intervening. In contrast to previous tariff-related situations, the current context of persistent inflation complicates the Fed's options. Ultimately, the conversation underscores the multifaceted nature of the economic challenges, encompassing fiscal policy, regulatory changes, energy markets, and immigration, all of which contribute to the current uncertainty and its implications for future economic growth.