Fed July rate hold was ‘absolutely’ right, Kaplan says

Goldman Sachs Vice Chairman Rob Kaplan has backed the Federal Reserve’s 9–3 decision to hold interest rates at 3.50%–3.75% in July while urging policymakers to keep their options open before September.

Why Kaplan supports the Fed’s July rate hold

Bloomberg reported that Kaplan, a former president of the Federal Reserve Bank of Dallas, described the decision not to raise rates in July as “absolutely” correct because officials still have time to study inflation and economic activity before their next meeting.

“If I see meaningful improvement, I might be willing to stay put, but I want to make full use of every moment before September to make judgments, avoiding rigidity or preconceived notions,” Kaplan said.

Serving as Goldman Sachs vice chairman, Kaplan also sits on the bank’s management committee. His comments represent his assessment of monetary policy and should not be treated as a formal Federal Reserve position because he is no longer a policymaker.

The Federal Open Market Committee voted 9–3 on July 29 to maintain its target range at 3.50%–3.75%. Presidents of the Cleveland, Dallas, and Minneapolis regional Fed banks preferred a 25-basis-point increase, according to the July rate decision previously covered by crypto.news.

Before the announcement, markets had assigned roughly a one-in-three probability to an increase. Bitcoin traded close to $64,100 after the decision, rising only about 0.3% over 24 hours as traders largely expected the Fed to leave borrowing costs unchanged.

Fed Chair Kevin Warsh avoided committing to a set path during his post-meeting remarks. Instead of describing the decision as a pause, Warsh said officials were conducting a careful review of economic conditions and would continue examining information before choosing their next step.

Kaplan’s call for flexibility follows the same data-led approach. In his view, firm promises about future rate decisions could become counterproductive when several forces are pushing inflation in opposite directions.

Competing pressures complicate the September decision

Among the inflation risks, Kaplan listed heavy spending on artificial intelligence infrastructure, tariffs, limited labor availability, and sharply higher oil prices. Companies building data centers need power, land, equipment, and workers, meaning large investment programs can place added pressure on prices and resources.

Tariffs can also raise the cost of imported goods and materials, while labor shortages may force employers to increase pay or leave positions unfilled. Higher oil prices can reach consumers through fuel, transport, and production costs, making energy markets another important part of the Fed’s assessment.

At the same time, Kaplan said the use of artificial intelligence could help lower inflation by improving productivity. Businesses that produce more with the same number of workers may reduce their costs, although the initial spending needed to build AI systems can create price pressure before those efficiency gains become visible.

Recent U.S. inflation data gave policymakers some evidence of improvement. The Bureau of Labor Statistics reported that the Consumer Price Index rose 0.1% in July and 3.4% from a year earlier, matching economists’ expectations. Annual inflation slowed to 3.5% in June.

Core CPI, which excludes food and energy, increased by 0.2% in July and 2.5% annually. The yearly core rate eased from 2.6%, but headline inflation remained above the Fed’s 2% goal.

Following the report, traders placed a 67% probability on no September rate change and about a 34% chance of a quarter-point increase, according to Polymarket figures cited in a report on July CPI. Bitcoin recovered from about $63,400 to $64,100, though the expected reading failed to produce a decisive break from its recent range.

Warsh should explain the July decision at Jackson Hole

With the Jackson Hole Economic Policy Symposium approaching, Kaplan said Warsh should use his address to explain briefly why the Fed did not act in July. He argued that a purely “philosophical” speech would offer less value when investors are seeking details about the committee’s decision-making process.

The annual gathering in Wyoming gives central bankers a prominent venue to discuss monetary policy and economic risks. Warsh’s remarks will draw attention from U.S. investors because changes in rate expectations can affect Treasury yields, the dollar, equities, and digital assets.

Clearer reasoning would not require Warsh to promise a September decision. Kaplan’s comments instead suggest that the Fed chair could explain why the July evidence did not justify an immediate increase while preserving the committee’s ability to act if inflation strengthens again.

U.S. employment figures have added another factor to the debate. Nonfarm payrolls fell by 23,000 in July, compared with forecasts for an increase of about 80,000 to 85,000, while revisions removed a combined 103,000 jobs from the May and June totals.

After the labor report, the probability of a September hold climbed to 66% from about 50% the day earlier. Analysts cited in an earlier U.S. payrolls report warned that one weak reading might not change the Fed’s position while energy prices and shipping risks remain elevated.

Long-term Treasury yields pose the larger concern

Beyond the September meeting, Kaplan said he is more concerned about long-term U.S. Treasury yields than the federal funds rate. The federal funds rate directly covers overnight lending between banks, while longer-dated Treasury yields influence mortgages, business financing, and the government’s borrowing costs.

According to Kaplan, rising long-term government bond yields in several countries stem from a structural imbalance between supply and demand rather than Fed policy alone. Governments continue to issue large amounts of debt to cover persistent fiscal deficits, requiring investors to absorb a growing supply of bonds.

The U.S. federal budget deficit reached a record $432 billion in July, as per reports, taking the fiscal-year total through July to $1.799 trillion. Calendar-related benefit payments raised the monthly figure, but the adjusted deficit still stood at $333 billion, up 18% from a year earlier.

Heavy Treasury issuance can push yields higher when investors demand more compensation to hold long-dated debt. Rising yields also increase the return available from government securities, which may reduce demand for Bitcoin and other assets that do not pay fixed interest.

Long borrowing costs can remain elevated even when the Fed holds its policy rate steady, supporting Kaplan’s distinction between monetary policy and the bond market’s fiscal concerns. A $25 billion sale of 30-year Treasury bonds on Aug. 13 produced a yield of 5.22%, the highest borrowing cost for that maturity since 2001.