Goldman Sachs Exchanges
2026-09-28 · Hosted by Allison Nathan · Goldman Sachs
Executive Summary
Goldman Sachs Vice Chairman and former Dallas Fed President Robert Kaplan told host Allison Nathan that the Fed was right to raise rates in September under new Chairman Kevin Worsh, after holding steady in July, because month-over-month inflation ran hotter than the roughly 0.2% pace the Fed had hoped for. Kaplan said the market may be pricing in more hikes than are actually likely — he favors just one more move, in December rather than October, bringing the Fed funds rate to a range he considers close to neutral (about 4-4.25%).
Key Stories & Changes
1. Fed Raises Rates for First Time in Years Under New Chair Kevin Worsh
The Fed hiked in September 2026, its first increase after three cuts in fall 2025
Kaplan said the July pause was correct, but September action was warranted once month-over-month inflation failed to cool toward the Fed's ~0.2%/month target
The dot plot showed a "fairly muted" response: median expectation of one more hike in 2026, with no action projected in 2027
Kaplan personally favors skipping October and evaluating again in December, which would bring the funds rate to 4-4.25%, near his estimate of neutral
2. Market May Be Overpricing Future Hikes
Kaplan said markets are pricing in more hikes than he thinks likely, building in a risk premium
Drivers of that premium: uncertainty about Kevin Worsh's reaction function, and the risk that the Iran war keeps oil elevated, potentially causing prices to "bleed into 30 or 40 [other price] items"
He said interest-rate-sensitive parts of the economy (autos, housing) are not overheated, limiting the case for aggressive tightening
3. Treasury Yields Rising on Deficit and AI CapEx Concerns, Not Just Fed Policy
The 10-year Treasury is now above 5%
The Congressional Budget Office revised its deficit estimates higher, not lower, despite 4-5.5% nominal GDP growth this year — undercutting hopes that growth alone would narrow the deficit
No new fiscal plan has been announced; only bond buybacks, which Kaplan said won't solve the underlying problem
The AI infrastructure boom is being financed with debt and equity along the yield curve, which Kaplan said has already priced in more rate increases than the Fed itself may deliver
4. Corporate Profit Share Rising, Labor Share More Muted
Kaplan said the Fed is aware that corporate profit share of GDP is rising, accelerated by AI, while the labor share is more muted
This is contributing to corporate resiliency and margin improvement, even as low-to-moderate income workers without financial assets struggle to keep up
5. Supply Shocks Complicate Fed Response
Kaplan distinguished short supply shocks (where the Fed should "look through" and do nothing) from prolonged ones (6-8+ months), which risk bleeding into 30-40 other price items
Current overlapping shocks: the Iran war/oil spike, tariffs, and immigration-driven labor constraints — layered on a historic CapEx boom
Kaplan said Worsh acknowledged in his press conference that the Fed can't stop the oil shock but can slow its transmission to other prices
Trends Identified
1. Decoupling of Fed Policy From AI-Driven Growth
The most resilient part of the economy — AI infrastructure spending — is largely insulated from Fed funds rate moves because it is financed by well-capitalized hyperscalers issuing debt and equity, not short-term borrowing. This means the Fed's traditional lever is losing potency against the boom itself, even as it still squeezes smaller, rate-sensitive borrowers like housing companies and small businesses.
2. Deficit and Fiscal Concerns Displacing Fed Policy as the Long-End Driver
Kaplan's repeated emphasis that the back end of the yield curve is being driven more by deficit and fiscal-plan uncertainty than by Fed actions suggests investors should watch fiscal policy signals as closely as FOMC meetings when gauging long-term rates.
3. Supply-Shock Stacking as the New Inflation Challenge
With tariffs, labor curtailment, and an oil shock hitting simultaneously against a CapEx boom, Kaplan frames this as a genuinely novel policy environment without historical precedent, implying elevated uncertainty in how the Fed calibrates future moves.
4. Bifurcated Economic Impact of Rate Policy
A recurring theme is the split between asset-owning households and corporations, who are shielded by resilient AI spending and improving margins, versus interest-rate-sensitive consumers and small businesses, who are already feeling the squeeze from a rate level Kaplan says is not overheated. ---
Sentiment Analysis
Overall Market Sentiment: Cautiously Reassuring
Kaplan's tone throughout is measured confidence: he believes the Fed acted appropriately and that further hikes will likely be moderate, while acknowledging real strain in specific pockets of the economy.
Risk Factors Highlighted
Persistent oil shock: An unresolved Iran war could keep oil prices elevated far longer than markets expect, risking inflation bleed into other categories.
Widening federal deficit: CBO's upward revision, with no fiscal plan in place, is pressuring the long end of the yield curve independent of Fed policy.
Market mispricing of Fed path: If the market has overpriced hikes, repricing could cause volatility once actual Fed actions diverge from expectations.
Squeeze on rate-sensitive sectors: Housing companies and small businesses financing inventory on short-term debt are already being squeezed by current rates.
Uncertainty around new Fed Chair's reaction function: Investors don't yet fully understand how Kevin Worsh will respond to data, adding a risk premium to pricing.
Stacked supply shocks: Tariffs, labor curtailment, and oil disruption occurring simultaneously create an unprecedented policy challenge with no clear playbook.
Widening income divide: Low-to-moderate income workers without financial assets are falling behind as corporate profit share of GDP rises.
This episode was covered in today's [The Market Signal — 2026-09-28](https://marketsignal.beehiiv.com/p/the-market-signal-2026-09-28), a cross-source synthesis of multiple podcast reports.