Larry Kudlow reveals how to combat inflation

Trump’s rise is a supply-side cure”Bidenflation“And that’s the riff thing. No one really knows what drives stocks up or down in the short term. That’s why I’ve been a long-time believer in the index fund strategy, ie passive investing.”

Many people disagree, and I respect that, but that’s still my point.That being said, the Dow has fallen for 9 straight days, more than half of the Dow’s decline is a function of the 20% decline of , after their heinous murder. insurance executive Brian Thompson. But aside from the United Health tragedy, roughly two-thirds of the Dow’s components fell during this 9-day selloff, including NVIDIA, which fell 11%.

No one in the stock market should hit the panic button. The S&P 500 has been roughly flat during this period of the Dow selloff, but the Dow’s decline gives me an opportunity to raise several economic policy issues that may or may not be related to the selloff.

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However… I think the Federal Reserve will make another mistake. when tomorrow they will lower their target rate as expected, and I also worry that the Trump administration and the Republican Congress will delay its tax cut plans.

Again, this may or may not have anything to do with the Dow correction, but as far as the Fed is concerned, an interesting story from Breitbart News suggests that some on President Trump’s economic team are warning that inflation risks may be understated. Jay Powell should be careful with these rate cuts and “Bidenflation” is not dead.

Essentially, the data shows that over the past 6 months or so, various measures of inflation have not only stopped falling, but have actually risen. The prices of CRB products increased by 16% compared to the previous year.The prices of gold and silver increased by about 30% compared to the previous year.

Money supply measures are accelerating again in the last 3 months. Asset prices, especially stocks, have risen at least recently.There is a lot of liquidity at the moment.Profits are the milk of mother stocks, at least in my opinion, and they have been solid, but the original Trump the post-election rally was based on the hope that tax cuts and deregulation would further boost business profits.

That doesn’t mean Trump’s plan won’t happen, but there could be a creeping concern that it could happen later in the year, and that could dampen the outlook for the economy and the 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 Fed to deliver higher inflation next year.

Just as sure the new administration doesn’t want stagnation home. So I have a supply side treatment. I am reminded of the late Robert Mundell, who won the Nobel Prize in Economics and was a dear friend and mentor.

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The supply-side cure for inflation is to lower marginal tax rates and minimize business regulations, thereby creating new incentives for work effort, investment, and growth. Second, Mundell would argue for strengthening the real value of the dollar by printing fewer dollars.In today’s terms, that means the Fed would have to shrink its balance sheet from $7 trillion to $5 trillion.

Mundell’s combination will produce more goods for less money, a cure for faster Trump growth and an end to “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.