YouSaid · the spoken record

Robert Kaplan

lines on the record: 84
first: 2023-06-12
most recent: 2023-06-12
sittings or episodes: 1
sources: podcast

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“I just want to revisit. You said in March 2020 and for longer when the Federal Reserve is doing quantitative easing, as you said, $120 billion a month and much more in March 2020, that the Federal Reserve sort of monetized that debt and aided the fiscal stimulus. Is that a view or a characterization that some of your colleagues at the Federal Reserve would have agreed with? Because I think the official terminology they use is, oh, we did quantitative easing not to monetize the debt, but to aid fiscal stability, excuse me, financial stability.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“And I would say one other thing just on the home side, you got to remember, so now that the Fed is raising rates, mortgage rates have increased dramatically to 6 and a fraction, 7%. So for first-time homebuyers, homes buying is really not affordable. And so they have to rent. And so that's why we see rents being hotter than you'd like otherwise. So you had this run-up in prices. And now you have this run-up in mortgage rates, which are keeping out buyers and forcing them to rent. There's an increase in multifamily supply, but that's one of the odd things going on in the housing market also.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“Thank you. And then buying of mortgage-backed securities as a result as well as taking interest rates to zero, mortgage rates were 3%. Bought homes with a mortgage of 2.8, 2.9%, or refinanced. And that stimulative effect doesn't go away once you raise interest rates to 5%. That's still there because they don't, you know, that's a 30-year fixed rate mortgage. So that's stimulative as well.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“Have to spend it or they're going to lose it. And so when you include that money plus the inflation reduction act plus the infrastructure act, you've got a number of programs that are stimulating fiscal spending that are much like what you would do if you were trying to get out of a recession. These are the kind of programs you'd be doing to stimulate the economy out of a recession. And we're doing them right now. And so I think that's one of the reasons why even though the Fed is hiked and has surprised the economy's not slowed more, I think there's an offset, which are some of the tail of these fiscal programs that is blunting monetary policy and is increasing demand for good services and labor, particularly in the service sector.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“Five and a quarter. It may need to do a little bit more. The reason we're not slowing more than we are, in my opinion, is the remnants of fiscal spending are still with us. And so what do I mean by that? The American Rescue Act passed back in 2020. It's been spent by the federal government. But I can tell you it has not been spent locally. That money in the tens of billions of dollars around the country is sitting in state and local bank accounts. It has to be in the lingo obligated by 2024 and spent by 25. And I can tell you every locality in the country where I talk to a mayor or a university chancellor, you name it, has got a substantial amount of money they're about to spend for new projects in state and local governments because they”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“And to try to slow this nominal GDP growth down to something ultimately, ideally they'd love to have, I think, four or five percent nominal growth. We're still running right now at about, you know, in the neighborhood of 7% or 8% nominal growth. You really can't get to inflation of even 3% if nominal growth is not down in the neighborhood of 4%. And why is that? We don't have the potential to grow a lot faster than 2% on a real basis in the United States. And one of the reasons for that is workforce growth is in the neighborhood of zero. Real GDP growth is the sum of workforce growth plus productivity. And we know because of demographics aging, workforce growth is very sluggish. Okay, so where are we right now? The Fed has got rates of 5%.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“And so we were running at 120 miles an hour, and you had people warning the economy was overheating. And I think with 12% nominal GDP growth in an economy that probably has real potential of about 2%, yeah, I'd say we were overheating. And we kept growing at about an 8% or 9% rate into 2022. All right. So finally, as I said, the Fed decided to slam on the brakes.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“So far so good. The problem started then in 2021 where we weren't totally out of COVID, but we were climbing out of COVID. And you had a new raft of fiscal spending in the trillions, and the Fed kept buying mortgage-backed securities and bonds to the tune of $80 billion of treasuries and $40 billion of mortgage-backed securities all through 2021. And so nominal GDP growth spiked in 2021 to 12%. In other words, real GDP plus inflation was 12%. The last time nominal growth in the United States was that high was probably in the 70s, which were a very high inflationary period.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“To get money into the hands of small business and into the hands of consumers. And the Fed basically monetized that spending by buying 80 billion of treasuries and $40 billion of mortgage-backed securities every month. And in addition, you had these 13.3 programs in the lingo, which backstopped the bond market, muni market, other markets to try to restore market function. So far so good. I think that was appropriate actions, not perfect. What the impact of those actions were is consumer spending during 2020 actually did not decline. It just shifted. It shifted from services to goods and it helped mitigate the contraction in GDP we'd otherwise have”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“So in 2020, I don't need to tell people GDP declined in the month of March 30% plus or minus. It then rebounded 30% in the month of April, but for the year, the economy probably, we lost, forget the number, 7 or 8% GDP. What the fiscal authorities tried to do in 2020 is estimate the GDP gap. So, if you're listening, let's say GDP is $22, $23 trillion, plus or minus 8% of it is a couple of trillion dollars, let's say. And so you had sizable fiscal programs that were passed.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“What an inverted yield curve is a sign of is people think that market rates today are going to decline because the economy is going to slow. That's why the curve is inverted. And the practical effect of an inverted yield curve is banks borrow short through deposits and they lend long through loans. An inverted yield curve means their net interest margins get squeezed. And it means they're less willing to lend. That's the reality. The reason the Fed might not be as worried as they would be otherwise is they're trying to slow the economy. So in the past, I was more concerned about inverted yield curve because we weren't trying to slow the economy. We were trying to stay out of recession. The Fed because of this inflation problem. Is actually trying to slow the economy, and that's why they may not be as alarmed as they might otherwise be.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“You said the curve, the sort of yield curve is inverted, meaning that longer dated bonds now yield less than shorter term interest rates. And a lot of that is because the Federal Reserve raised interest rates so drastically. In some markets, participant views and inverted yield curve is almost always.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“Significant for small mid sized businesses who are very reliant on banks for capital, for loans. Big public companies don't borrow that much from commercial banks. They borrow mainly in the financial markets based on the curve. They haven't been as meaningfully hurt. Small mid-sized companies have been.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“And here's the problem that's not raising capital. That's replacing deposits with loans. That's not capital. Or what they're doing is going to the wholesale CD market and buying CDs so that they put some window dressing on their deposits. So the fact of the matter is that doesn't help with capital. It just helps with liquidity. And so what the banks are wrestling with right now is they have less capital than they like. They worry that there's going to be more deposit instability. They don't know. And they know we're heading into a credit cycle. So what they're doing by and large is they are shrinking their loan books in order to try to fit back into the capital they do have. And the impact of that is particularly”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“And banks where deposits are leaving, they're raising capital either through the discount window from the Fed, bank term funding program, new program from the Fed, or the federal home loan bank. And that money is costing high four, low five percentile. It's not costing zero.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“For dollar for dollar. And while they were at it, they didn't stop there. They looked at banks with a high percentage of uninsured deposits. They looked for banks with high loan to deposit ratios, and they marked them down. And so what you saw is market value of banking stocks went down dramatically to where now most public banks are trading for less than book value. Maybe JP Morgan's probably the only obvious bank I can think of that's trades that more than book. That's a dramatic change. Six months ago, banks were by and large trading at one quarter, one half times book. Now they're almost all trading less than book. And what the public market is saying is your equity is not worth book value. And it isn't. And so that is in the real world. That's a loss of capital.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“That it literally, when you mark those to market, it wiped out all their net worth. The reason this issue came to light is now as the Fed is draining liquidity. It's starting to run off its balance sheet. Silicon Valley Bank started to have some deposit declines to where they needed to sell some of these hold to maturity assets to create liquidity. And when they did that, they had to recognize the losses. And then everybody woke up to the fact that, oh my Lord, who else has this kind of mismatch? And what the public markets did is they did the supervisor's job for them. They said, boy, if the supervisors aren't regulatory personnel aren't watching this, we're going to do their job. And they looked at every single public bank and they marked down every bank who had sizable hold of maturity accounts and they did it.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“Well, so here's the part where Bonbuin comes into play. What happened, the Fed kept buying 80 billion of treasuries, $40 billion of mortgage-backed securities all through 21 and through a good part of 22, a meaningful chunk of that bond buying indirectly wound up in bank deposits going up dramatically. So you had this massive increase in bank deposits. And so the banks had to decide what to do with all these bank deposits. And their choices were to make more loans, which they did to some extent. But they also dramatically increased their hold of maturity accounts and their investment accounts. And in the extreme, that's what Silicon Valley Bank did, and that's what First Republic did. They weren't alone. Others did it too. The difference between First Republic and Silicon Valley Bank and the others, they did it in such...”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“And do you think there's an aspect of banks expanding their balance sheets when interest rates were so low? So they made the time when they made all these loans was when interest rates were at zero. And now interest rates are much higher. So they could be making loans, but they're just not able to make as many loans. sort of net interest mark, they're kind of being squeezed a little bit.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“That second part's regrettable. And I think obviously it's part, you have to take ownership of bank management, but also this is why regulators exist. This is why supervision exists, is to take these vulnerabilities and step in. And so the unfortunate impact of that was Precredit cycle, pre downturn. We've lost bank capital throughout the system and we're going into what may be a severe slowdown. We don't know yet with a lot less capital than we thought we had three or four months ago. That is really unfortunate.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“To wipe out their entire net worth Silicon Valley Bank, First Republic Bank. It was not invisible. It was very transparent what they were doing. All you had to do was look at their hold to maturity account. And so the second issue, which I really regret didn't happen is I wasn't at the Fed, but I regret that the Fed did not increase their vigilance on banks and encourage them a year ago to clean up these mismatches. And it would have been pretty easy to do. There wouldn't have been big losses taken, and it would have allowed those banks to survive. But for whatever reason, those mismatches were allowed to continue without supervisory regulatory intervention.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“There was still time to clean up those asset liability mismatches, but again, they were in a hole to maturity account. And so the way these hold to maturity accounts work, if you start selling them, you have to recognize the losses. And so I think they may have felt a little bit handcuffed. But there's a second mistake, which is from a supervision point of view. If I'd been at the Fed, I would have been strongly advocating let's hyper focus on and be dramatically more vigilant on those banks that have taken big asset liability mismatch positions. It's not a long list. And I've looked at it in hindsight now. A lot of banks did not excessively make that asset liability mismatch bet, but some did. And I mean an enormous size. And when I say enormous size,”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“Not completely. So there are two issues. Issue number one is, yeah, when rates were at zero and it was clear the Fed was aggressively buying bonds. Certain banks, not all, but certain banks decided to buy AAA treasuries and AA mortgage-backed securities and create an asset liability mismatch. Normally, even in those periods, I would have advised the Manksio don't do that. You're taking a risk. And they clear it was an array tightening cycle.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“And a lot of people in the banking community say the reasons that banks, and particularly some regional banks, and particularly First Republic, Silicon Valley Bank, the reason that those banks failed, we don't necessarily want to blame the Federal Reserve, but the role of interest rates being at zero and being told by JPAL, we're not even thinking about thinking about raising rates. Okay, so we're going to lock in our net interest margins and buy some paper yielding 2%. And suddenly interest rates go from 0% to 5%. A lot of people in the banking world attribute the turmoil in the banking system to that rapid raise in interest rates from 0% to 5% in about a year. Do you agree with that? Is that characterization fair?”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“And this slamming has been going on for a year, and like when you're driving your car, when you slam on your brakes, there's no textbook for how to slam. There's no textbook called How to Slam on the Brakes. It's unpredictable. Things get broken, surprising things happen, and that's a little bit of what we're seeing.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“No, it's not. So, what happens, and the best analogy is to drive in your car, if you drive 120 miles an hour and you keep driving 120 miles an hour, and in the distance there's an intersection with a red light, you know that eventually, unfortunately, if you don't slow down to 55, you're going to have to slam on the brakes. What we're seeing over the last year is the feds had to slam on the brakes. And I mean slam. And so normally what you'll want is more smooth monetary policy, where yeah, you get down to 55, so you have the option to go 35, you have the option to go 70 again. But we haven't had, the Fed hasn't had a choice here. It was going so fast by middle to late 2022. There was no choice but to slam on the brake.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“In 2020, when we're in COVID, we were running 120 miles an hour to get out of a ditch. But after we got out of the ditch in sometime in, say, early 2021, it would have been smart to take your foot off the accelerator and start going 55 miles an hour again. And that type of guidance commitment, I think straitjacketed the Fed from doing, I think what should have been done.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“That case, yes, I believe strongly that that was a time that the Fed should have tried to instead retain its flexibility. We were coming out of COVID. It was clear we'd been through a historically unusual period because of COVID. And when you're in that kind of situation, the Fed should be very careful about retaining its flexibility, not being rigid and predetermined, not committing to future actions. Because you know the only thing you know for sure is the world's going to change. We're coming out of COVID. We've had massive fiscal policy. And I think that was a time where the Fed should have retained its flexibility. And if it had, I think it would have stopped buying bonds sooner, would have raised rates sooner, would have slowed down.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“And so in September, interest rates were at zero and forward guidance, the name of this show is committing to keeping interest rate a certain level, letting the market know what is going to come ahead so that forward rates can kind of price that in. So is it fair to say that you think the Federal Reserve relied too much on forward guidance because it let the market know it sort of made a promise to the market that we're going to keep financial conditions loose for a very long time?”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“Until the economy reached full employment and it was clear that inflation was not only at 2% but running moderately above 2%. I am not supportive of making current commitments to future actions. I think that I felt strongly that was a mistake. I think that type of approach is a mistake. And I think unfortunately passing that guidance even though I dissented, the rest of the committee voted for it passing that guidance in September of 2020 paved the way to continuing to buy bonds for all of 2021 at 80 billion and 40 billion a month and into a good part of 2022 when I think it would have been much wiser for the Fed to take its foot off the accelerator and slow down. All this monetary policy accommodation sometime in 2021. And I think it would have avoided some of the challenges we're facing now.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“So the part I had a problem with, I don't have a problem with the Fed being a little less preemptive on inflation than it's been historically, meaning as you get down to very low levels of unemployment being a little bit more patient in taking action to tighten monetary policy. That part, I didn't have a problem with. What I had a big problem with, which caused me to dissent, is in September of 2020, the Fed committed To leaving rates at zero.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“That makes a lot of sense. So let's talk about what you would have done because you were there. And FedShare J. Powell, notable for having very few dissent for voting members of the Federal Open Market Committee, one of the very few dissents and one of, I think your only dissent was in September of 2020 when the Federal Reserve just put out this flexible average inflation targeting model. And you dissented to that. Could you explain why you dissented to that and why that's sort of relevant to what we're seeing today?”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“I'm always a fan of figuring out what I would do if I were there and not predicting what they will do. That's what I would do.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT
“I think the market's judging that there'll be a pause in this meeting. My own advice if I were at the Fed, I would not act in this meeting, but I would make clear that the pause is within a tightening stance, which means there might be more increases after this meeting. And I think it's very important the Fed emphasize that.”
2023-06-12 · Forward Guidance · Higher For Longer | Robert Kaplan, Former Dallas Fed President & CEO · IDENTIFIED FROM THE TRANSCRIPT