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A Scandal At The Fed Straight Out Of A John Le Carré Novel — And Higher Rates, Too

Chairman Powell denies it, but a Senate committee, the FBI and Britain’s MI5 are hot on the trail, issuing a rare joint warning to all businesses over Chinese espionage and cyber hacking.

United States Federal Reserve Chairman Jerome Powell
Federal Reserve Chairman Jerome Powell

Chairman Jerome Powell’s Fed went ahead and raised its target rate 75 basis points to 2.5 percent, as the world expected. No big surprise. The stock market increased more than 500 points, bonds are basically flat, with the 10-year at 2.79, and gold is up $18.

I think if he had a little more hair on his chest, he would’ve done 100. My theory is simply that the faster the Fed gets its target rate above inflation — and drains excess cash from the economy and achieves price stability — then the faster the economy can start growing again.

Remember, the Fed’s recent tightening moves have not yet significantly affected the economy. That’s still ahead of us. The economic slump in the first half of the year is principally a function of skyrocketing inflation, which has undermined real wages and real retail sales and completely damaged consumer and small-business confidence.

The conference board’s consumer confidence survey numbers are dropping like a stone. The July reading was 95.7 percent; a year ago it was 125.1 percent. That's a decline of 23 percent, and consumer inflation expectations for the next year is 7.6 percent, which I find to be just about right.

Market signals are suggesting a peak of inflation, but it’s going to be sticky on the way down, and it’s going to take more than a year — perhaps two years if the Fed is ever going to get back to its 2 percent target. So this is not going to be easy. And if you want any semblance of growth in the economy, you’ve gotta extend the Trump tax cuts and slash President Biden’s modern socialism, the regulatory scourge.

Those policies have to go away: his war against fossil fuels — and for that matter the rest of business — and his opposition to profits, and his insistence that the focal point of his radical progressive economic policy is income redistribution and radical climate activism. They are obstructing economic growth. Low taxes and tight money is the right recipe. The Bidens don’t get it.

Now, the latest news story about the Fed is that Chinese spying and espionage has infiltrated our nation’s central bank.

Mr. Powell denies it, but the Senate Committee on Homeland Security and the FBI and Britain’s MI5 are hot on the trail, issuing a rare joint warning to all businesses over Chinese espionage and cyber hacking.

Over at the Fed, research assistants throughout the Federal Reserve system have had illegal contacts with the Chinese ruling Communist Party. They are now being busted. China has tried to get a hold of Federal Reserve economic models and key data points, and China has launched efforts for talent recruitment programs as well as information sharing.

This goes all the way back to a Fed investigation in 2015, where they identified 13 people of interest, dubbed the “P” network, in 8 of the 12 regional Fed banks. Then, a former employee of the Fed, identified as “Z,” attempted to recruit network members.

This stuff is out of a John le Carré novel. Think “Tinker, Tailor, Soldier, Spy.” Senator Portman is the lead on the investigation. He can play George Smiley in the new movie, replacing Gary Oldman.

Why Mr. Powell is denying all this is beyond me. If he continues, we’re not going to give him a part in the movie.

Adding to the plot, a Fed economist traveling to Shanghai a couple of years ago had Chinese thugs breaking into his hotel room, telling him he had to share sensitive information and advise the Chinese Communist government. They even monitored his telephone calls surrounding a prior divorce. Those guys play tough. Very cruel.

Frankly, I don't know why the Chinese want the Fed’s forecasts, because they’re never any good. Maybe Mr. Powell is handling double agents to spread bad information. In any case, this is a nasty story. This is about national security, and it is about Chinese communist evildoing.

This is one of many reasons why Mr. Biden should absolutely refuse to make any concessions to China. On tariffs, or selling strategic petroleum oil reserves, or anything else.

Larry Kudlow was the Director of the National Economic Council under President Trump 2018-2021. His Fox Business show "Kudlow" airs at 4 p.m &. radio show airs on 770 ABC from 10:00 a.m. to 1:00 p.m.