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The Federal Reserve's Approach To Combating Inflation Is Not Working

FOMC Chair Powell answers a reporter's question at the June 16 2019 press conferenceFederalreserve, Public domain, via Wikimedia Commons

Let me begin by giving you some Friday topics, starting off with today’s producer price index, which rose unexpectedly. Over the past 12 months, these wholesale prices have increased 7.4 percent, with food up 15.5 percent and energy up 16.2 percent.

So let me get this right. The Federal Reserve has been jacking up its target rate by leaps and bounds since the beginning of the year. Interest rates across the board have gone up. Everyone is correctly worried about recession. Yet wholesale inflation continues to roar. What’s up with that?

In fact, using the old methodology — because a lot of people don't believe the new methodology is any good — the PPI is up 10.6 percent. Even excluding energy and food, it’s up 8.1 percent. Mind you, the Fed’s inflation target is 2 percent.

The consumer price index comes out next week and the Cleveland Fed Nowcast estimates it’s up about 6 percent annually just for the month alone. So you could say the Fed’s approach of smashing the economy is not working.

All the Wall Street demand-siders think inflation is over and the Fed tightening is going to stop — and there will be no recession, and we’ll all live happily ever after. Now, I do agree we will all live happily ever after, but these inflation numbers are unconvincing. People have been in denial about the inflation problem basically for the last two years.

Which brings me to my final thought: Why not turn the oil and gas spigots back on? Make sure the expiring Trump business tax cuts do not expire. Stop the regulatory war against businesses large and small. Get rid of the IRS expansion. Allow the economy to produce more goods and services on the supply side. That will get inflation down pronto, as long as the Fed geniuses keep a sound, steady dollar.

Second point, speaking of the war against businesses: I don’t know why Microsoft shouldn’t be permitted to purchase Activision. I’m no expert on these video games or Activision itself; in fact, I think these video games are destroying the minds of our children and promoting violence and bad behavior, but they exist.

Microsoft is a fabulous company. It would probably make the games better, or the software delivery better, and probably cut prices. Big is not bad, by itself.

The Federal Trade Commission chairwoman, Lina Khan, is a hardcore socialist. She hates business. She hates capitalism. She hates successful companies. She’s got a paper trail proving this. The question that should be asked is whether consumers will be harmed by this merger. I haven’t seen any evidence of that.

These vertical mergers, by the way, have survived the courts and most of the time have proved to be very positive in terms of lowering consumer prices. Let me repeat: The standard for anti-trust should not be “big is bad”; it should center on questions of who is harmed, who are the victims, and what is the consumer welfare impact. Ms. Khan hasn’t proved any of that.

The Biden FTC is trying to strangle American business and free-market capitalism because they are socialists, and when it’s not trying to strangle business and free-market capitalism it’s drudging up unbelievably stupid and restrictive climate rules. This itself is a form of central planning being jammed down the throats of Americans who don't want it.

The latest example is the climate rules for our new weapon systems. By the time they’re done, Northrop Grumman’s new B-21 stealth bomber, which is unbelievably great for America’s defense, will have to be run by little triple-A batteries.

What's that sound I hear? It’s the Chinese cheering American stupidity. This is the regulatory state at work to promote America’s last decline. I don’t want decline. I want America first. I want free-market capitalism, not socialist central planning. I’m sick of these ideologues who really don’t like America running through the Biden administration.

From Mr. Kudlow’s broadcast on Fox Business News.

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