Probably would have argued against rate cut, says former Dallas Fed president Kaplan

Core Viewpoint - The Federal Reserve's future actions regarding interest rates and the potential appointment of a new chair are critical considerations for investors in 2026 [1] Group 1: Interest Rate Outlook - There is an expectation of a firming in 2026 due to factors such as regulatory relief, tax benefits, and the continuation of the AI boom [2] - The current job market weakness is attributed to structural issues and the recent shutdown, which is now over, leading to concerns about being at a neutral interest rate while inflation remains above target [4][8] - The Fed's current neutral rate is estimated to be in the range of 3.5% to 3.75%, with inflation running above the target of 2.75% [8] Group 2: Labor Market and Inflation - The unemployment rate of 4.6% may be skewed due to a recent increase in labor supply following the shutdown, which might not be sustainable [6][7] - There is a belief that the labor market's current weakness is more structural than cyclical, with tariffs disproportionately affecting small businesses [5][11] - The anticipation of AI's impact on productivity is seen as a structural issue that could influence future economic conditions [6][12] Group 3: Fed's Internal Dynamics - The divide within the Fed has become more pronounced as they approach neutral rates, with differing opinions on whether to cut rates further or maintain the current stance [10] - The tension within the Fed is attributed to the need for evidence of improving inflation before making further decisions [9][10]