SEE YOU TOMORROW.
COMING UP LARRY KUDLOW ♪
LARRY: HELLO, EVERYONE, WELCOME
TO "KUDLOW."
I’M LARRY KUDLOW.
SO AFTER SPEAKING YESTERDAY TO A
GROUP OF WASHINGTON BUSINESS
ECONOMISTS FED CHAIR JAY POWELL
HAD A VERY REVEALING BACK AND
FORTH WITH A BUNCH OF REPORTERS.
I WANT TO EXPLORE IT.
INFLATION IS THE NUMBER ONE
PROBLEM IN THE COUNTRY.
A RECENT "WALL STREET JOURNAL"
POLL HAD RESPONDENTS WHAT IS THE
MOST IMPORTANT ISSUE?
INFLATION WAS AT THE HEAD OF THE
LIST.
TWICE AS MANY PEOPLE CITED IT AS
THE SECOND HIGHEST ISSUE WHICH
WAS WAR IN UKRAINE.
10 TIMES PEOPLE CITED INFLATION
OVER THE CORONAVIRUS PANDEMIC.
THAT SAME "WALL STREET JOURNAL"
POLL, 63% DISAPPROVED OF
JOE BIDEN’S HANDLING OF
INFLATION.
JUST 34% APPROVED.
NOW A LITTLE LATER IN THE SHOW
WE’RE GOING TO TALK TO SENATOR
RAND PAUL ABOUT THE CAUSES OF
INFLATION AND WHAT TO DO ABOUT
IT BUT I THINK WE’RE HEADED FOR
SOME VERY ROUGH GOING OVER THIS
INFLATION PROBLEM.
INTERESTINGLY, IMPORTANTLY,
JAY POWELL SAID YESTERDAY, I’M
GOING TO QUOTE THIS, QUOTE, I
BELIEVE THESE POLICY ACTIONS AND
THOSE TO COME WILL HELP BRING
INFLATION DOWN NEAR 2% OVER THE
NEXT THREE YEARS.
NOW HAT TIP TO MY FRIEND BYRON
YORK FOR PICKING THIS UP.
THREE YEARS, FOLKS.
I’M GOING TO SAY IN ALL
LIKELIHOOD, IT IS GOING TO BE
THREE YEARS OF STAGFLATION AND
UNFORTUNATELY THE PROBABILITY OF
RECESSION DURING THIS PERIOD IS
QUITE HIGH.
THE IDEA OF A SOFT LAND
SOMETHING REALLY A TRIUMPH OF
HOPE OVER EXPERIENCE.
THE FED HASN’T EVEN BEGUN TO
FIGHT.
TALK YES, ACTION, NO.
NOT YET.
RIGHT NOW IN THE FIRST QUARTER
OF THIS YEAR I WOULD SAY REAL
GDP WILL RISE BY MAYBE 2% AND
THE OFFICIAL INFLATION IN THE
GDP ACCOUNTS WILL BE MAYBE SIX
OR 7%.
WHEN PRICES ARE RISING FASTER
THAN OUTPUT THAT IS CALLED
STAGFLATION.
THAT’S WHERE WE ARE.
WAGES ARE RISING NICELY BUT
UNFORTUNATELY INFLATION IS
RISING FASTER SO WORKING FOLKS
ARE LOSING GROUND.
THE INFLATION WE’RE EXPERIENCING
WAS GROUNDED IN EXCESSIVE
GOVERNMENT SPENDING, DEFICIT
FINANCE AND ACCOMMODATED BY FED
MONEY PRINTING.
JAY POWELL CONTINUED TO IGNORE
ALL OF THE WARNING SIGNS OVER
THE PAST YEAR AND THIS WHOLE
ARGUMENT FROM JOE BIDEN THAT
VLADMIR PUTIN HAS CAUSED
INFLATION IS UTTER NONSENSE.
THE OIL PRICE IMPACT AND THE
GASOLINE PRICE EFFECT, THAT
JUMPED LAST FIVE OR SIX WEEKS,
OKAY.
BIDEN HAS AMNESIA FROM THE PRIOR
YEAR, CONSUMER INFLATION JUMPED
FROM 2% TO OVER 7%.
GASOLINE PRICES, THE PRICES OF
VIRTUALLY EVERYTHING ELSE
INCREASED SIGNIFICANTLY.
FOOD, HOUSING CARS, RECREATION,
COMMODITIES, SERVICES, YOU NAME
IT, IT HAS ALL GONE UP.
IN FACT YOU CAN TAKE ENERGY
RIGHT OUT OF THE CPI, THE
INFLATION RATE WOULD BE 6.5%
OVER THE PAST YEAR.
THAT WOULD STILL BE A FOUR
DECADE HIGH.
SO WHILE MR. BIDEN WAGED WAR
AGAINST FOSSIL FUEL INDUSTRY AND
LOWER PRODUCTION HAS CAUSED
ENERGY PRICES TO SKYROCKET THAT
IS REALLY ONLY PART OF THE
STORY.
AS I SAID DEFICIT FINANCE AND
EASY MONEY IS THE BULK OF IT.
NOTEWORTHY JAY POWELL SAID HE
WANTED TO BE LIKE PAUL VOLCKER
IN HIS PRESSER YESTERDAY.
WELL, SORRY, JAY, YOU’RE MORE
LIKE ARTHUR BURNS IN THE ’70s,
WHO PUMPED UP THE MONEY SUPPLY
AND DESTROYED THE DOLLAR.
WAY BACK WHEN, WHEN I WAS
ASSISTANT TO PAUL VOLCKER WHEN
HE WAS PRESIDENT OF THE NEW YORK
FED IN THE EARLY ’70s, JUST
SAYING.
ANYWAY WHEN VOLCKER TOOK OVER AS
FED CHAIR HE STARTED SHRINKING
THE FED’S PORTFOLIO, SHRINKING
THE BALANCE SHEET, HAULING IN
THE MONEY SUPPLY, BRINGING DOWN
SURGING COMMODITIES AND RESCUING
THE VALUE OF THE DOLLAR.
REAL INTEREST RATES LITERALLY
SKYROCKETED.
IF JAY POWELL WANTS TO BE LIKE
PAUL VOLCKER HE SHOULD READ UP
ON WHAT STROLLER DID IN THE
EARLY 1980s WHILE
RONALD REAGAN WAS PRESIDENT.
BASICALLY VOLCKER BELIEVED IN
STRONG KING DOLLAR AND COMMODITY
PRICE RULE.
HE KEPT SLOWING DOWN MONEY
SUPPLY UNTIL THE DOLLAR FULLY
RECOVERED AND COMMODITIES
FLATTENED OUT.
JAY POWELL HAS IGNORED THE MONEY
SUPPLY, HE IGNORED THE FED’S
BALANCE SHEET AT THAT TAKES
MONEY.
JAY POWELL NEVER TALKS ABOUT
COMMODITY INDEXES.
POWELL SAID THE FED MAY BE MORE
AGGRESSIVE BUT THEY HAVEN’T EVEN
STOPPED BUYING BONDS.
THEY’RE STILL BUYING
MORTGAGE-BACKED BONDS EVEN WHILE
HOME PRICES RISE 20%.
THAT IS AN OUTRAGE.
EVEN IF THE FED GETS TO 2%
TARGET RATE END OF THIS YEAR,
THAT WOULD BE FOUR OR FIVE
PERCENTAGE POINTS BELOW THE
INFLATION RATE.
THEY NEED TO GET THEIR TARGET
RATE FOUR OR FIVE PERCENTAGE
POINTS ABOVE THE INFLATION RATE.
YOU GOT SOME SMART FED PEOPLE
LIKE JIM BULLARD OF THE
ST. LOUIS BANK AND CHRIS WALLER
ON THE BOARD.
THEY WANT A LITTLE SHOCK AND AWE
TO REVERSE INFLATION
EXPECTATIONS, MAYBE 50 OR 100
BASIS POINT RATE HIKES.
THAT WOULD SIGNAL REGIME CHANGE
BUT RIGHT NOW JAY POWELL’S
TALKING THE TALK BUT HE IS NOT
WALKING THE WALK.
INFLATION FEARS ARE JUMPING UP
EVERYWHERE INCLUDING THE BOND
MARKET.
THE 10-YEAR IS NOW MARCHING
TOWARDS 2.5%.
IT IS GOING TO GO MUCH HIGHER.
THE FIVE-YEAR TREASURY INFLATION
BREAKEVENS, THAT JUMPED TO 3.6%
AND IT WILL GO HIGHER.
COMMODITY PRICES KEEP SURGING
HIGHER.
HIS BACK AND FORTH WITH
REPORTERS YESTERDAY JAY POWELL
ACKNOWLEDGED THAT NUMEROUS
MISTAKES THE CENTRAL BANK HAS
MADE OVER THE PAST YEAR BUT HE
HAS NOT YET LAID OUT A CLEAR
PLAN TO REVERSE THOSE MISTAKES
AND THE LONGER HE WAITS THE
WORSE IT IS GOING TO BE FOR THE
AMERICAN ECONOMY AND ITS
BLUE-COLLAR WORKING FOLKS.
WHERE IS REAGAN AND VOLCKER WHEN