Goldman Sachs Vice Chairman Robert Kaplan has backed the Federal Reserve’s 9–3 decision to keep interest rates at 3.50%–3.75% in July, arguing that policymakers needed more time to assess inflation before acting.
Summary
- The Fed held rates at 3.50%–3.75% in July despite three votes for an increase.
- Kaplan said incoming data should determine whether policymakers raise rates in September.
- AI investment, tariffs, labor shortages, and oil prices could keep inflation elevated.
- Kaplan said fiscal deficits, not Fed policy, are pushing long-term Treasury yields higher.
Why Kaplan supports the Fed rate pause
Bloomberg Television reported on Aug. 13 that Kaplan, a former president of the Federal Reserve Bank of Dallas, viewed the July pause as the correct decision despite continued inflation pressure and an unusually divided vote.
During the July 28–29 meeting, the Federal Open Market Committee left the federal funds rate unchanged at 3.50%–3.75%. According to the Fed’s official statement, Beth Hammack of the Cleveland Fed, Neel Kashkari of the Minneapolis Fed, and Lorie Logan of the Dallas Fed voted for a quarter-point increase.
Kaplan said policymakers should use the remaining time before the Sept. 15–16 meeting to determine whether inflation is improving enough to justify another pause. Rather than committing to a fixed position several weeks in advance, he called for officials to assess each new economic report as it arrives.
“If I see meaningful improvement, I might be willing to stay put,” Kaplan said, adding that he wanted to use “every moment before September” to reach a decision without “rigidity or preconceived notions.”
Recent data has given policymakers some evidence that price growth is slowing, although inflation remains above the Fed’s 2% goal. The U.S. Bureau of Labor Statistics reported on Aug. 12 that consumer prices rose 0.1% in July and 3.4% from a year earlier, compared with a 3.5% annual increase in June.
Core inflation, which excludes food and energy, increased by 0.2% for the month and 2.5% annually. Its annual rate eased from 2.6% in June, while the energy index remained 14.7% higher than a year earlier.
As crypto.news previously reported, Chicago Fed President Austan Goolsbee has described inflation as the main problem facing the U.S. economy, even as he characterized the labor market as stable but weak. Goolsbee does not hold an FOMC vote in 2026.
Inflation forces are moving in opposite directions
Although Kaplan supported waiting in July, he identified several forces that could prevent inflation from returning quickly to the central bank’s target. Investment linked to artificial intelligence is increasing demand for power, construction materials, data centers, and specialized workers, he told Bloomberg.
Kaplan also cited tariffs, labor constraints, and high oil prices as sources of upward pressure. Tariffs can raise the cost of imported products and business inputs, while worker shortages can force employers to increase wages or delay planned expansion, according to his assessment.
Rising oil prices add another layer because energy costs feed into transport, manufacturing, and household expenses. The Fed’s July statement said inflation remained elevated partly because supply shocks had raised prices in sectors including energy.
At the same time, Kaplan said the adoption of AI could lower inflation by helping businesses improve productivity and produce more with the same amount of labor and capital. In his view, the investment phase may increase demand and costs before the resulting technology begins to reduce operating expenses.
Richmond Fed President Tom Barkin offered a similar assessment on Aug. 13, saying tariffs, oil prices, and demand created by the AI boom were contributing to inflation. Barkin said it remained an open question whether the Fed would need another rate increase to return inflation to 2%.
Cleveland Fed President Hammack has taken a firmer position. In an Aug. 13 speech, she said the Fed should raise rates promptly because inflation has stayed above its target for more than five years. Hammack also warned that continued business borrowing and investment could add to existing price pressure.
The competing views explain why Kaplan wants the central bank to retain flexibility. While the latest CPI figures have slowed, his comments indicate that policymakers still need to decide whether the improvement will continue or whether energy, tariffs, and business investment will keep inflation elevated.
Warsh should explain the July decision at Jackson Hole
Kaplan also urged Federal Reserve Chair Kevin Warsh to use his coming Jackson Hole address to explain why the central bank did not raise rates in July. He said the speech should offer a short account of the decision rather than focus only on the philosophy guiding monetary policy.
Warsh has reduced the Fed’s reliance on forward guidance since becoming chair in 2026, leaving investors more dependent on employment, inflation, and economic growth data. The Fed’s July statement did not provide a clear signal about whether officials expect to change rates in September.
According to Kaplan, the three dissents make a factual explanation especially useful because the vote showed considerable disagreement inside the FOMC. The July decision passed 9–3 after the Fed kept rates unchanged for a fifth consecutive meeting.
The Federal Reserve Bank of Kansas City will hold the Jackson Hole Economic Policy Symposium from Aug. 27 to Aug. 29. Its 2026 theme is “Financial Innovation: Implications for Payments and Policy,” according to the bank’s official event page.
Before the July decision, futures markets had assigned about a one-in-three probability to a quarter-point increase. Following the latest inflation data, prediction-market traders placed a 67% probability on another pause in September, according to recent market coverage.
Bitcoin recovered from about $63,400 to $64,100 after the CPI release but failed to sustain a strong rally. A separate Bitcoin market report showed the asset later falling toward $63,300 as the expected inflation reading provided little reason for traders to add risk.
Higher policy rates can affect digital assets by increasing returns on cash and government debt, which may reduce demand for assets such as Bitcoin. Rate expectations can also influence the dollar, borrowing costs, and liquidity available to investors, although Bitcoin’s limited response to the July CPI report showed that inflation data was not the market’s only driver.
Treasury yields concern Kaplan more than short-term rates
Kaplan said he was more concerned about long-term U.S. Treasury yields than the federal funds rate itself. While the Fed directly sets an overnight target range, longer-term yields are determined by bond-market demand, inflation expectations, government borrowing needs, and the compensation investors require for holding debt over many years.
In Kaplan’s assessment, rising long-term yields in the United States and other major economies point to a structural imbalance between the amount of debt being issued and the demand available to absorb it. He linked the pressure mainly to persistent fiscal deficits rather than the Fed’s decisions on short-term interest rates.
Large deficits require the U.S. Treasury to sell more bills, notes, and bonds to finance government spending. If buyers demand higher returns to absorb the additional supply, yields rise even when the central bank leaves its policy rate unchanged.
The effect reaches American households and companies because Treasury yields serve as reference rates for mortgages, corporate borrowing, and other forms of credit. Rising long-term yields can therefore keep financing costs elevated without a new increase in the federal funds rate.
Pressure in the bond market became clearer during the Treasury’s Aug. 13 auction of $25 billion in 30-year debt. The securities were sold at a yield of 5.22%, up from 5.06% at the previous auction in July and the highest borrowing cost for a 30-year Treasury sale since 2001.
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