Larry Kudlow: Jerome Powell shouldn't try to explain the unexplainable

Larry Kudlow: Jerome Powell shouldn’t try to explain the unexplainable

So folks, today is Fed Day. The Fed releases its interest rate policy announcement, which everyone knew rose 75 basis points to 4%, and then Jay Powell holds a press conference.

Now, you probably never really thought about it, but I think Jay Powell has a lot in common with Kamala Harris. Both seem to make sense of words or, to put it another way, they both build what have been called “word salads”. In other words, they say a lot, but no one has a clue what they mean.

Of course Kamala Harris isn’t in charge of anything and Jay Powell is in charge of the nation’s money supply so his word salad should be bigger than his but if you ask a stock trader he’ll tell you that he didn’t. I don’t understand what he said either.

Earlier today, I continued with my friend Sandra Smith on FNC. During the teaser, the stock market was up over 400 points. By the time we got to the actual interview it had already dropped to zero and then it had dropped about 150 points. I think for the day as a whole it ended down 450, the swing was 900 points.


Federal Reserve Jerome Powell in a suit w

Federal Reserve Chairman Jerome Powell addresses the Senate Banking, Housing, and Urban Affairs Committee as he presents the Monetary Policy Report to the committee on Capitol Hill, Wednesday, June 22, 2022, in Washington. (AP Photo/Manuel Balce Ceneta/AP Newsroom)

So, let’s begin our new take on Fed observation, with a salad of words from Vice Chairman Kamala Harris, please listen:

VICE PRESIDENT KAMALA HARRIS: The Governor, I and we were all going around the library here and talking about the importance of the passage of time. Right? The importance of the passage of time. So when you think about it, there’s a big significance to the passage of time in terms of what we need to do to lay those threads…

Now can someone tell me what she said? Seriously. Okay, now let’s turn to Jay Powell. Listen to this:

JEROME POWELL: At some point, as I have said at the last two press conferences, it will become appropriate to slow the pace of increases as we approach the level of interest rates that will be restrictive enough to bring inflation back to our 2% target. There is great uncertainty around this level of interest rates. Data received since our last meeting suggests that the ultimate level of interest rates will be higher than expected.

So that sounds difficult, right? Lots of Paul Volcker hair on Jay Powell’s chest. But wait a minute, just a little later, Mr. Powell said this:

POWELL: So I would say that as we get closer to that level, as we get more into restrictive territory, the question of speed becomes less important than the second and third questions, and that’s why I said at the last two press conferences that at some point it will become appropriate to slow the pace of increases. So that moment is coming and it could come at the next meeting or the one after. No decision has been made…

What did he just say? Looks like a resignation could happen as early as next month, that is December! Well, that’s right away, isn’t it? Or maybe not before January? Or February? Or who knows when? But if it’s next month, December, it looks like Jay is cutting some of that Volcker chest hair. Maybe taking the monetary brake off a bit, you know what I mean?

Meanwhile, interest rates, while all of this is going on, interest rates are swinging wildly with the Dow Jones. As of this second, we’re basically looking at around 900swing point, all thanks to Jay Powell, who really does a lot more damage than even Kamala Harris did, although she probably wishes she had that kind of power, right? But it’s a separate riff.

The thing is, Mr. Powell, who’s not a bad person – he’s probably trying his best to get through a sticky situation, shouldn’t walk in front of the press and shouldn’t try to explain the inexplicable because the Federal Reserve models are very inaccurate with a terrible track record. Remember last year? There was no inflation. Then there was a little bit, but it was transient. Then there was a lot more, but it was still transitory. Then finally the Fed banished the word “transitional” from its vocabulary. Now, let’s give some substance to this discussion.

The Fed has raised its target rate and reduced money supply growth over the past six months. It started late, but it looks like they are winning on the ultimate goal, which is to get back to 2% inflation. Commodity market indicators pointing to lower future inflation. However, it is also true that once you let the genie out of the lamp, it is quite difficult to put the toothpaste back in the tube. Pardon my mixed metaphors, but you know where I’m coming from.

Some measures of inflation, however, such as the Cleveland Fed’s median CPI of 7% year over year, suggest that inflation is more entrenched in the economy. The official CPI is 8.2%, excluding food and energy — 6.6%. Supposedly the Fed’s favorite indicator, which is called the PCE, is the personal consumption expenditure price index, well it’s 6.2%, excluding food and energy – 5, 1%. Meanwhile, the Cleveland Fed’s wage tracker, although showing year-over-year wage increases of 6.7% and the latest employment cost index for service workers, in particular retail trade, leisure and the hotel industry, which increased by 7.7%.

Now remember, again, the Fed’s so-called “price stability target” is 2%. Well, all those inflation stats are way over 2%. So even though some leading inflation indicators are down, other important current inflation numbers are not, and the Fed is still in trouble, and so is the economy. Remember, annual real wages for the entire workforce, well, they’ve been falling for 18 straight months. It’s the soft underbelly of Biden’s economy.


Jerome Powell makes a stressed face

U.S. Federal Reserve Chairman Jerome Powell attends a meeting of the IMFC (International Monetary and Financial Committee) at the IMF and World Bank Annual Meetings at IMF Headquarters on October 14, 2022 in Washington, DC. (Photo by Drew Angerer/G (Drew Angerer/Getty Images/Getty Images)

Much of this whole inflation problem was created by the Biden Democrats who insisted on runaway spending with their Green New Deal socialism, expanding entitlements including Medicaid, no work requirements, raising taxes , which of course hurts the offer. economy, waging war on fossil fuels, which has caused higher inflation and declining growth – in fact telling us time and time again that refined petroleum products, which impact hundreds of everyday items for families sitting around kitchen tables, fossil fuels, will all be abolished and so will these products because of the war on fossil fuels, which will further increase costs.

You could call it madness, or you could just call it election question #1, and that’s why the cavalry is coming. In fact, the troops may be even bigger than we thought. It’s my riff.

This article is adapted from Larry Kudlow’s opening commentary on the November 2, 2022 edition of “Kudlow”.

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