Larry Kudlow: Why the Fed Ignores Supply-Side Booms and Falling Inflation

Fed's Disinflationary Blind Spot

• 💡 Fed members Steve Meyer and Chris Waller are commended for dissenting and advocating for a rate cut, recognizing the economy's disinflationary, supply-side boom.
• 🎯 The economy is characterized by strong growth with easing inflation pressures, evidenced by low increases in core PCE and CPI over recent months.
• 📈 Unit labor costs are barely above 1% annually, suggesting a productivity-led economy that is inherently counterinflationary.

Ignored Economic Drivers

• 🚀 The Fed fails to acknowledge how full-cost expensing is spurring business capital investment and driving the productivity boom.
• 📉 Energy prices, including gasoline, have been declining for a year, a factor the Fed seems to overlook despite its counterinflationary impact.
• 🚫 Despite months of focus on tariff inflation, goods prices remain below the Fed's 2% target, yet this is no longer discussed by the Fed.

Flawed Economic Models

• ⚠️ The Fed's models are criticized for incorrectly linking growth and a large workforce to inflation.
• 📉 Financial markets react negatively to good economic news because they fear the Fed will raise interest rates, hindering the current economic expansion.
• ❓ The high US bond rates compared to Japan and China are questioned, especially given the stronger US economy and corporate profits.

Call for Fed Transformation

• 🔑 A strong dollar policy and confidence are suggested as ways to help lower interest rates.
• 🔄 It is time for a change at the Fed, urging the abandonment of flawed models and negative attitudes towards growth and inflation.
• 🌟 President Trump is encouraged to make a transformational choice for the Federal Reserve.