Larry Kudlow: Jerome Powell should not try to explain the unexplainable


Larry Kudlow: Interest rates are ‘gyrating wildly’

FOX Business host Larry Kudlow weighs in on Federal Reserve chairman Jerome Powell’s announcement on interest rates on ‘Kudlow.’

So folks, today is Fed Day. The Fed comes out with its policy announcement on interest rates, which as everybody knew went up 75 basis points to 4%, and then Jay Powell holds a press conference. 

Now, you probably never really thought quite about this, but I think Jay Powell has a lot in common with Kamala Harris. Both of them seem to have a way with words or, to put it another way, both of them construct what has been called "word salads." In other words, they say a lot, but no one has any idea what they mean.  

Of course, Kamala Harris is in charge of nothing and Jay Powell is in charge of the nation's money supply, so his word salad should be more important than hers, but if you ask a stock market trader, they'll tell you they didn't get what he said either. 

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


Federal Reserve Chairman Jerome Powell speaks to 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 approach to Fed watching, with a word salad from Vice President Kamala Harris, please take a listen:

VICE PRESIDENT KAMALA HARRIS: The governor and I and we were all doing a tour of the library here and talking about the significance of the passage of time. Right? The significance of the passage of time. So, when you think about it, there is great significance to the passage of time in terms of what we need to do to lay these wires…

Now, can anyone tell me what she said? Seriously. Alright, now, let us turn to Jay Powell. Take a listen to this:  

JEROME POWELL: At some point, as I've said in 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 sufficiently restrictive to bring inflation down to our 2% goal. There is significant uncertainty around that level of interest rates. Incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.

So, that sounds tough, right? Plenty of Paul Volcker hair on Jay Powell's chest. But wait a minute, just a little bit later, Mr. Powell said this:  

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

What did he just say? Kind of sounds like a step-down could happen as soon as next month, which is December! Well, that's right away, isn't it? Or maybe not until January? Or February? Or who knows when? But if it's next month, December, it kind of sounds like Jay’s clipping some of those Volcker chest hairs off. Maybe taking a little off the monetary brake, know what I mean?  

Meanwhile, interest rates, while all of this is going on, interest rates are gyrating wildly along with the Dow Jones. As of this second, we're basically looking at about a 900point swing, all thanks to Jay Powell, which is really a lot more damage than even Kamala Harris has even done, though she probably would love to have that kind of power, wouldn't she? But that's a separate riff.  

Fact is, Mr. Powell, who is not a bad person — he’s probably trying as hard as he can to get through a tricky situation, should not go before the press and should not try to explain what is unexplainable because the Federal Reserve models are highly inaccurate with a terrible track record. Remember last year? There was no inflation. Then there was a teensy bit, but it was transitory. Then there was a lot more, but it was still transitory. Then finally the Fed banned the word "transitory" from its vocabulary. Now, let’s just put a little substance into this discussion. 

The Fed has been raising its target rate and cutting back on money supply growth over the past six months. It got a late start, but it does appear they are gaining on the ultimate goal, which is to get back to 2% inflation. Commodity market indicators pointing toward lower future inflation. However, it's also the case that once you let the genie out of the lamp, it's pretty hard to get the toothpaste back in the tube. Pardon my mixed metaphors, but you know what I'm driving at.  

Some inflation measures, however, like the Cleveland Fed's 7% year-to-year median CPI, well that suggests inflation is more embedded 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, that’s Personal Consumption Expenditures price index, well that’s 6.2%, excluding food and energy — 5.1%. Meanwhile, the Cleveland Fed's wage tracker, well that shows year-to-year wage increases of 6.7% and the most recent employment cost index for service workers, especially retail, leisure and hospitality, well that’s rising at 7.7%.  

Now remember, again, the Fed's so-called "price stability target" is 2%. Well, all these inflation stats are way over 2%. So, even though some inflation leading indicators are coming down, other important current inflation numbers are not and the Fed still has a problem and so does the economy. Remember, yearly real wages for the whole workforce, well they’ve been falling for 18 consecutive months. That’s the soft underbelly of the Biden economy.   


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

So much of this whole inflation problem was created by the Biden Democrats who insisted on out-of-control spending with their Green New Deal socialism, expanding entitlements, including Medicaid, with no work requirements, raising taxes, which of course damages the supply side of the economy, waging war on fossil fuels, which has caused higher inflation and declining growth — actually telling us time and 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 those products because of the war on fossil fuels and then that will jack up costs even more.  

You might call this insanity, or you might just call it the No. 1 election issue, and that is why the cavalry is coming. In fact, the troops may be even larger than we thought. That is my riff. 

This article is adapted from Larry Kudlow's opening commentary on the November 2, 2022, edition of "Kudlow." 

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