Goldman Sachs Vice Chairman Robert Kaplan believes that the US labor market is even worse than the job data shows.
Kaplan, the former president of the Federal Reserve Bank of Dallas, tells CNBC in a new interview that the low unemployment figures are not telling the full labor story because the overall labor pool is shrinking due to President Trump’s immigration efforts.
“I’ve been saying for some time that hiring is down to stall speed. That’s been true for the last few months. The reason the unemployment rate is so low is not that businesses are firing; they’re not, but they’re not hiring either, and we’re losing labor supply because of the immigration policies. You’ve got to look at more than just headline unemployment to understand the labor market.
The labor market is weaker than headline unemployment suggests, and the reason, again, is businesses are not hiring. Hiring is very sluggish, and it just doesn’t look as bad as it might, because supply is also declining.”
He also believes that the Fed may announce a rate cut at its next meeting in September.
“If I were in my former seat, I would be tilting very seriously to thinking about cutting in September. There are cross currents, and here’s why I say tilting. We’re running above 2% inflation. Whether we like it or not, the tariffs are going to raise costs…
It’s been some time since we’ve been in a situation that we were at risk of not meeting our employment mandate, and we’re having above-trend inflation…
And so this weakening, if it persists, it means I’m going to have to take more risk, and my guess is that will mean taking a serious look at cutting 25 basis points in September. But I would caution that doesn’t mean we’re starting a rate-cutting cycle after September. If we cut, you wipe the slate clean and take a fresh look at November.”
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