Executive Summary
Market Consensus: Fed will cut rates 2-3 times in 2026, with high probability of December cut. Variant Perception: Former Dallas Fed President Rob Kaplan argues markets are dramatically overestimating cut probabilities. His core thesis: neutral rate is 3.5-3.75% (not 2.75%), inflation is structurally higher at 2.75-3%, and current 3.75-4% Fed Funds rate leaves little room for cuts. This creates a contrarian setup where: 1) Gold benefits from Fed independence concerns and sticky inflation, 2) Regional banks get crushed as rate cuts fail to materialize, 3) Duration trades face significant risk. Kaplan's insider perspective on Fed decision-making process and detailed macro analysis suggest this is not just another hawkish call - it's a structural reassessment of monetary policy that markets haven't priced in.
Key Insights
what Robert Kaplan said“my own view... is the neutral nominal Fed funds rate. It's inflation plus a real Fed funds rate... the real neutral Fed funds rate is somewhere between three quarters of a percent and one percent... that makes me believe that currently the nominal neutral rate is about three and a half, three and three quarters”
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