FOX Business host Larry Kudlow provided reactions to the Federal Reserve’s recent decision to reduce interest rates by 50 basis points on his show ‘Kudlow.’
According to Kudlow, Federal Reserve Chair Jay Powell’s rate cut appears to benefit Kamala Harris just 48 days before the election. This move places the central bank in the midst of presidential politics, despite prior commitments to avoid such entanglements.
The decision to cut rates significantly came amid a modest decline in commodity prices, longer-term interest rates, and softening labor market conditions. Economically, a 25-basis point cut might have sufficed without implying any political bias. However, the 50-basis point cut closely aligns with demands from ultra-liberal Democratic senators Elizabeth Warren, Sheldon Whitehouse, and John Hickenlooper, who had advocated for a more substantial 75-basis point reduction.
With the election imminent, the Federal Reserve could have postponed this action until their next scheduled meeting, 49 days later. Delaying the decision would have neutralized any political implications without impacting the economy.
Currently, the overall economy is performing above the Federal Reserve’s 2% growth target. While year-to-year inflation has decreased to 2.5%, it remains above the Fed’s 2% target. The more pressing issue is an affordability crisis, as consumer prices during the Biden-Harris administration have increased faster than wages, leading to a 4% decline in real wages for typical working families.
In contrast, during the Trump administration, real wages rose by over 9%, resulting in an approximately $6,000 increase for a typical family. Under the Biden-Harris administration, real wages saw a roughly $1,300 increase. Prices for essentials such as groceries, gasoline, electricity, home prices, insurance rates, and autos have surged significantly, exceeding 20%.
The Federal Reserve aggravated the situation by monetizing excessive federal spending during the Biden-Harris years and continuing to fuel inflation until late 2022. The argument that the inflation was ‘transitory’ proved incorrect.
The affordability crisis, characterized by high borrowing costs for mortgages, car loans, and credit cards, remains a critical challenge for the administration. Kamala Harris has struggled to address the question, “Are you better off now than you were four years ago?” in various forums.
While it is possible the Federal Reserve has insights suggesting the economy is on the verge of collapse, making a 50-basis point cut necessary, this scenario seems improbable. The ongoing government spending under the Biden-Harris administration risks further inflation by injecting more money into the economy. If Kamala Harris were elected president and imposed substantial tax hikes, economic growth could be stifled, potentially leading to the classic super-inflation scenario of “too much money chasing too few goods.”
Kudlow suggests that Mr. Trump’s approach—cutting taxes, deregulating, controlling spending, and increasing oil production—would foster rapid economic growth without inflation, thus alleviating the affordability crisis.
This commentary is adapted from Larry Kudlow’s opening remarks on the Sept. 18, 2024, edition of “Kudlow.”
