Larry Kudlow reveals how to combat inflation

Trumpian growth is the supply-side cure for “Bidenflation” and that’s the thing about the riff. No one really knows what makes stocks go up – or down – in the short term. That’s why I’ve long believed in a buy-and-hold index fund strategy, aka passive investing. .

Many disagree and I respect that, but it’s still my opinion. Having said all this, it is worth noting that the Dow Jones index has fallen for nine consecutive days, for the first time since 1978. More than half of the drop in the Dow Jones is due to a 20% drop in United Health Group, after the atrocious murder of his insurance CEO Brian Thompson. But aside from the United Health tragedy, about two-thirds of the Dow components have fallen during this nine-day sell-off, including NVIDIA, which has fallen 11%.

No one should hit the panic button in the stock market. The S&P 500 has remained largely stable during this period of the Dow Jones selloff, but the drop in the Dow gives me the opportunity to raise a couple of economic policy questions, which may or may not have anything to do with the selloff.

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However… I think the Federal Reserve will make another mistake: when it lowers its target interest rate tomorrow, as is widely expected, and I’m also worried that the Trump administration and the Republican Congress will delay their tax cut plans.

Again, this may or may not have anything to do with the Dow Jones correction, but, regarding the Federal Reserve, an interesting Breitbart News story speculates that some members of President Trump’s economic team are warning that the risks of inflation may be underestimated, Jay Powell should be careful. with these rate cuts and “Bidenflation” is not dead.

Essentially, the data shows that over the last six months or so, various measures of inflation have not only stopped falling, but have actually increased. CRB commodity prices have increased by 16% over the past year. Gold and silver prices are up almost 30% over the past year.

Money supply measures are accelerating again in the last three months. Asset prices, especially stocks, have been booming at least until recently. There is a lot of liquidity floating around right now. Earnings are the stock’s mother’s milk, at least in my view, and they have been solid, but the original price Triumph The post-election rally was based on hopes that tax cuts and deregulation would further boost corporate profits.

That’s not to say the Trump plan won’t be implemented, but there could be growing concern that it could come later in the year, and that could cloud the outlook for the economy and stock market next year or even into 2026. These are concerns. You can be sure that President Trump and his team do not want the Federal Reserve to generate a higher inflation rate next year.

You can be equally sure that the new administration does not want stagnation economy. So, I have a supply-side cure: remembering the late Robert Mundell, who won a Nobel Prize in Economics and was a dear friend and mentor.

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The cure for supply-side inflation is to reduce marginal tax rates and minimize economic regulations on businesses, thus creating new incentives for work effort, investment, and growth. In other words, produce more goods, and that alone would reduce inflation. Second, Mundell would argue that the real value of the dollar should be strengthened by printing fewer dollars. In today’s terms, that means the Federal Reserve would have to cut its balance sheet from $7 trillion to $5 trillion.

The Mundell combination would generate more goods for less money. That’s a cure for faster Trumpian growth and ending “Bidenflation” once and for all. Think about it. That’s the riff.

This article is adapted from Larry Kudlow’s opening commentary in the December 17, 2024 edition of “Kudlow.”