Larry Kudlow reveals how to fight inflation

Trump’s growth is the supply-side cure for…Inflation“And that’s what all the hype is about. No one really knows what drives stocks up — or down — in the short term. That’s why I’ve long been a believer in the buy-and-hold index fund strategy, passive investing.

Many people disagree with me, and I respect that, but this is still my opinion. However, it is worth noting that the Dow Jones fell for nine consecutive days – for the first time since 1978. More than half of the Dow’s decline was due to a 20% decline at UnitedHealth Group, in the wake of the gruesome murder of their family. Insurance CEO Brian Thompson. But aside from the UnitedHealth tragedy, nearly two-thirds of the Dow Jones components fell during the 9-day selloff — including Nvidia, which fell 11%.

No one should hit the panic button in the stock market. The S&P 500 was roughly flat during the Dow sell-off, but the Dow’s decline gives me an opportunity to raise some economic policy issues – which may or may not have anything to do with the sell-off.

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However… I believe the Fed will make another mistake – when it cuts its interest rate target tomorrow, as is widely expected, and I also fear that the Trump administration and Republican Congress will delay tax cut plans.

Again, this may or may not have something to do with the Dow Jones correction, but regarding the Fed, an interesting story from Breitbart News speculates that some on President Trump’s economic team are warning that inflation risks may be underestimated, and that… Jay Powell needs to be cautious with these rate cuts and “two-sided inflation” is not dead.

Essentially, the data shows that in the past six months or so, various measures of inflation have not only stopped falling, but have actually risen. CRB commodity prices have risen 16% over the past year. Gold and silver prices have risen approximately 30% over the past year.

Money supply measures have been accelerating again over the past three months. Asset prices, especially stocks, have been booming until at least recently. There is a lot of liquidity circulating at the moment. Dividends are the mother’s milk of stocks, at least in my way of thinking – and they have been solid, but the original Trump The post-election protests were based on the hope that tax cuts and deregulation would further boost corporate profits.

This does not mean that Trump’s plan will not be implemented, but there may be growing concern that it may come later in the year – and this could affect the outlook for the economy and the stock market next year or even in 2026. These are the concerns. You can be sure that President Trump and his team do not want the Fed to achieve a higher inflation rate next year.

And you can be equally sure that the new administration does not want a recession economy. So I have a supply-side remedy: going back to 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 reduce marginal tax rates and reduce economic regulations on business, thus creating new incentives for work, investment, and growth. In other words, producing more goods, this in itself would reduce inflation. Second, Mondale might argue that the real value of the dollar should be enhanced by printing fewer dollars. In today’s circumstances, this means that the Fed must reduce its balance sheet from $7 trillion to $5 trillion.

A Mondale group would generate more goods for less money. This is a cure for Trump’s faster growth and ending “double inflation” once and for all. Think about it. This is the riff.

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