00:00Julie Fine, who's with Rob Kaplan, the Goldman Sachs vice chair and former Dallas Fed president
00:05for an important interview here on Balance of Power. Julie, take it away.
00:09Joe, thanks so much. And thanks so much for being with us, Rob.
00:13First of all, I want to talk about your reaction to Kevin Warsh as the next chairman of the Fed.
00:17You know him. You've brought him to Dallas in the past. What do you think about this?
00:21I think he'll be an excellent Fed chair. He's got a lot on his plate,
00:27especially in the next number of weeks. He's got to get prepared for that first meeting and the
00:32press conference and the dot plot explanation. But I think he'll do a very good job. And he has
00:39a number of challenges in front of him, but I think he'll be an excellent Fed chair.
00:42You just pointed to that next meeting. What do you expect in terms of interest rates,
00:46especially when you're looking at inflation in the war?
00:49Yes. So the reason I say it's challenging is if you roll back the clock, you know,
00:54eight weeks ago, I think the view was the next Fed move would be a cut. It's just a question
01:02of how
01:02late in the year was it going to be. Because of oil prices being elevated and inflation readings being
01:08stickier, now the view is, and probably the conditions would warrant, the next Fed move may
01:14actually be a raise and they may do nothing this year. And if they were going to do something,
01:20it would be more negative from a rate increase point of view because they have to deal with
01:25inflation. So he's going to have to work through that. And the meeting itself, he's got to get to
01:30know people after today around the table. He has to understand their views. This is before the mid-June
01:36meeting. He's got to clean up the statement. So it has more of a neutral bias rather than remember
01:42the three dissents the last meeting about the downward bias. He has to clean that up.
01:46And there's a dot plot that comes out after this meeting. And the dot plot is going to show
01:52expectations for the rate path are firmer, not lower. And so he's going to be responsible for
01:59explaining the dot plot in the press conference. So that's a lot to prepare for in the next three or
02:04four weeks. As you very well know, you saw how President Trump was very public about Jerome Powell
02:10and his decisions. President Trump saying today, and this really stuck out to me in the press
02:14conference, he's telling Kevin Walsh, I want you to be independent. I want you to do your own
02:19thing. Is that even possible?
02:21Yeah, I think it's not only possible, I think it's essential. And I think Donald Trump in his
02:27comments obviously is indicating that. And Kevin Walsh knows that, meaning he has to be seen
02:34not only in the room at the FOMC as independent, but I think to the public, for the Fed's moves
02:43to
02:43have credibility, I think he'll have to position himself as an independent arbiter who's trying to
02:49make the very best decisions to make sure we control inflation and we have full employment.
02:55And so whatever public statements might have been made and leading up to confirmation and up to now,
03:02I think he can wipe the slate clean on those. And I think Kevin Walsh will, and my advice to
03:07him
03:07would be, he needs to not worry about any political constituencies at all, and I don't think he will.
03:14He has to worry about doing the job.
03:15Former Fed Chair Jerome Powell has decided to stay on as governor. You talked about the voices in the
03:22room. How does the new Fed Chair handle that?
03:24Well, I would guess J-PAL's approach will be to be as quiet as humanly possible, given he's sitting
03:35around the table and he'll get a turn to speak. But I think he wants to fade into the background
03:41as
03:41much as he can, allow the new Fed Chair to take over. He's staying for a very narrow reason, I
03:48believe,
03:49which is he's worried about the legal overhang. And I would hope that J-PAL stay there, the time frame
03:56will be minimized as little as possible. But I think he won't, he'll try not to do anything that
04:02might impede the ability of Kevin Walsh to step up and take control and do his job.
04:06I'm curious, I want to shift to Goldman Sachs before we let you go. I want to know what your
04:11clients are telling you right now about AI. So we obviously know that inflation's been stickier.
04:20The rate curve is moving up. It's having some challenging effects on the economy, low,
04:26moderate income consumers. But to your point, against all that, you've got a structural,
04:32historic structural trend of not only AI infrastructure to build compute, that's the 800
04:39billion being spent this year, but AI adoption. And what we're seeing is every business is having
04:46to work on use cases about how they can build in AI adoption to improve their business. Here's how
04:53it's playing out. In the US, in the economic growth, economic growth is solid, but kind of sluggish.
05:01Corporate earnings growth, on the other hand, is being revised upward. And I think we're going to see
05:07potentially a multi-year trend where S&P earnings are improving at double-digit rates, even though
05:16GDP growth is a little bit sluggish. It's going to be more concentrated in smaller names, but many
05:21businesses are going to use AI to improve their margins in their business. And that's what we're
05:27hearing from clients. Before I let you go, we're sitting here in Texas. You're going to have a large,
05:32large new office in Dallas, well on your way to more than 5,000 employees here. What are you hearing
05:37from those that are deciding, hey, we're going to move to Texas?
05:40So at our firm, we've got already 4,500 plus people here on our way to, as you said, over
05:475,000.
05:48That's part of a global firm that has 45,000 plus or minus people globally. This will be a major
05:57presence. And one of the things we like about Texas is it's a growing state, magnet for people
06:05and firms here, pro-business culture, access to talent. And one of the things that we're also
06:13seeing, there's a very collaborative atmosphere between government, business, academia, non-profits
06:21to where we have shared ownership. And I think that kind of mindset has been a magnet for people
06:28and firms to move here. It's a very welcoming environment and pro-business in a constructive
06:33way. And I think that's some of the various things that we like at Goldman Sachs and many
06:42of our clients like, which is why they're coming here.
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