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Dallas Fed president on the mood in the Fed’s Zoom room

Kai Ryssdal and Maria Hollenhorst Dec 18, 2020
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Robert Kaplan, president and CEO of the Dallas Federal Reserve. Courtesy of the Federal Reserve Bank of Dallas

Dallas Fed president on the mood in the Fed’s Zoom room

Kai Ryssdal and Maria Hollenhorst Dec 18, 2020
Heard on:
Robert Kaplan, president and CEO of the Dallas Federal Reserve. Courtesy of the Federal Reserve Bank of Dallas
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In a press conference following a meeting this week of the Federal Open Market Committee — the group that sets monetary policy for the Federal Reserve — Federal Chairman Jerome Powell expressed optimism about U.S. economic prospects in 2021, but warned that the next few months “are likely to be very challenging.” Robert Kaplan, president and CEO of the Federal Reserve Bank of Dallas, is currently one of the voting members of the FOMC. He spoke with “Marketplace” host Kai Ryssdal about the Fed’s optimism, the role of fiscal policy in supporting the economy, and his go-to sources of data. The following is an edited transcript of their conversation

Kai Ryssdal: Do me a favor would you, and give me a sense of the mood inside the room — or inside the Zoom, I suppose — Tuesday and Wednesday. The Fed is, it seems to the lay observer, a bit more optimistic than it has been in the past couple of months.

Vaccine is increasing optimism

Robert Kaplan: Yeah, I think the vaccine has played a big role in increasing our optimism about next year. We’re still — around the room, we’re very concerned (and I’m very concerned) about the next three to four months, though. We think in the first quarter of 2021, you’re going to have either flat growth, or you could even potentially have slightly negative growth in the United States. But having said that, my own forecast is that [gross domestic product] growth will be in excess of 4% next year, and I think that’s indicative of optimism of others in the room about having a strong rebound as we get into latter parts of 2021.

Ryssdal: We’re all counting on the vaccine. There are millions of people out there, though, who are counting on some kind of relief, some kind of aid from Congress. The chairman said in his press conference the other day it is widely understood that fiscal relief is needed. I wonder if you think that Congress does understand that it’s needed. 

Kaplan: Yeah, I think so. After having conversations with members on both sides of the aisle, I think people very well understand the fact that household income and consumer spending has remained solid this year, despite a significant downturn. I think it’s well understood that the primary reason for that is fiscal relief — unemployment benefits. This downturn has not felt like a normal downturn for the whole economy because of fiscal relief, and there are millions of people out there today that are relying on this relief to make ends meet.

Ryssdal: I have asked this question elsewhere in the program today, but how important is speed? I mean, do you think we’ve missed the opportunity to ensure uninterrupted relief?

“Fiscal relief savings is running out”

Kaplan: It’s my own view that people are living off savings from the initial round of relief. But it feels like the economy’s decelerating, partly due to resurgence [of COVID-19] and partly due to the fact that fiscal relief savings is running out. And so I think we’re at the point here where if Congress decides to do this, it would be welcome and it would help get us through the next three or four months as we work our way to a vaccine.

Ryssdal: What do you make of the disconnect between equity markets and what we know is happening in the regular economy, where it’s slowing down and people are hurting?

Kaplan: It has a lot to do with time frame. The economy is about right now, and the equity market’s about what’s going to happen over the next six months, 12 months, two years. If you look out over the horizon, the prospects for the economy give me a lot of encouragement. We’re going to have strong growth next year, we’re going to have above-trend growth in 2022. The market has the ability to discount that, [but] if you’re a family trying to make ends meet, you got to live with the here and now, and that’s the disconnect. 

Ryssdal: This is a little sideways, but how do you know what you know? What are you looking at to get a sense of what’s going on out there in the economy? The Dallas Fed has a bunch of tools. I’m sure you’ve got your go-tos.

High-frequency data

Kaplan: Yep, we do. So I’m looking at all the normal financial and economic data, but the concern about that in this crisis is that by the time you get the data, it’s stale. So more than ever, we’ve gone to high frequency data — that’s publicly available cellphone information, mobility information. And then the other key thing I do is I make at least 25 calls every week, sometimes more to small businesses, mid-sized businesses, public officials, health care officials, and those calls give me a great sense, along with that other data, of where the pain is out there and how the economy is doing. So that’s a key part of my process.

Ryssdal: Last question, Rob, and then I’ll let you go. We had the chairman on a number of years ago, and we talked about what he does to relax. And, you know, he plays the guitar. We had [New York Fed President] John Williams on a number of weeks ago from New York. He’s a gamer, it turns out — who knew? With arguably the American economy resting at least partially on your shoulders, what do you do to tune out? What do you do to relax?

Kaplan: I have a 6-year-old and a 3-year-old boy. And I can tell you the second I walk in that door, whether I like it or not, I am focused and looking into their eyes, and they’re pulling me in two different directions. And that gets me away from the Fed and the U.S. economy pretty quickly.

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