A Former Fed President Says Without the War in Iran and the Oil Spike, Nobody Would Even Be 'Talking About the Prospect of a Rate Increase'

Robert Kaplan, vice chairman of Goldman Sachs (GS) and a former president of the Federal Reserve Bank of Dallas, told Bloomberg Television on Thursday morning that the rate-hike debate consuming markets this summer might not exist at all if not for a war. "In fairness, if we didn't have the war in Iran and the spike in oil prices, which I think has raised headline inflation and leads into other items, my guess is we may not even [be] talking about the prospect of a rate increase," he said.

That cuts against how the argument has been conducted all summer. The live question on trading desks has been whether the Federal Reserve's next move is up rather than down, and it has been fought almost entirely in the language of domestic economics: tariffs, labor supply, and the pace of AI-driven capital spending. Kaplan, speaking hours after the latest inflation figures landed, put the cause somewhere else: in a barrel of oil.

One thing about the speaker matters before leaning on the claim. Kaplan is not a serving Fed official and has not been one for years. He ran the Dallas Fed and now sits as a vice chairman at Goldman Sachs, describing the reaction function of an institution he no longer votes at. He is also among the most quoted Fed watchers alive, precisely because he used to sit in that room, and on Thursday he was willing to say what serving officials will not.

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He did not stop at the counterfactual. When asked what he would do in his former seat, Kaplan said the Fed was right not to raise rates in July, then delivered a sharper judgment on the decision before it. "I wouldn't have cut in December either," he said. "That last cut I would not have done." A former regional Fed president calling a completed easing move a mistake on live television is not a dissent, but it is the closest thing to one on the record.

The mechanism is the oldest one in inflation. Crude oil feeds headline inflation directly through fuel and indirectly through everything that has to be moved, and the gap between headline and core carries his whole argument. If a spike stays penned inside energy, a central bank can look through it. If it "leads into other items," in Kaplan's phrase, it stops being a supply shock and becomes an inflation problem. He thinks some of that leaking has happened. Barchart has tracked the supply side all year, including the repeated talks to reopen the Strait of Hormuz that moved the price in both directions.

What keeps him from committing to a direction is that nearly every other force he can name points the other way. "The AI infrastructure build is probably inflationary," he said. "You have tariffs, labor constraints, all spikes that exacerbate that. On the other hand, AI adoption should ultimately be disinflationary, Chinese overcapacity should be disinflationary." A committee holding that list does not look dovish or hawkish. It looks stuck.

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He did put a number on where this ends up, and it needs its timeframe attached. "The debate at the Fed, does the Fed funds rate ultimately need to be higher? If it is higher, we are talking over the next year or two, maybe 50, 75 basis points," he said. "The Fed will figure it out. It may not be pretty but they will figure it out." That is one to three quarter-point moves spread over as much as two years, not a call on the next meeting, and it should not be compressed into one. Whether the futures market agrees is a separate and checkable question.

He also drew a line the bond market has argued about for a year: the long end is not a Fed story. He described a global backup in long yields rather than an American one and put it down to structural forces, a polite way of saying deficits and supply. Barchart contributors have worked adjacent ground, including the case that inflation isn't going anywhere and a harder read on a Fed inflation blunder.

He closed on communication. "In fairness to Chair Warsh, he has been gently counseling people on the committee, don't overpredict what you are thinking, don't overexplain it, you will box yourself," Kaplan said. "I actually think that is good advice." His own suggestion was that a few sentences explaining July would help. That is Kaplan's advice and nothing more; he has no more idea than anyone else what will be said at Jackson Hole.

The useful part is the conditional he built the whole argument on. If the oil spike is the reason a hike is being discussed at all, the most important input to the next Fed decision is not a labor market number. It is a price Barchart quotes all day.