After yesterday’s stock market holiday, with the Dow up more than 900 points, today’s market plunge of 1,200 points was a dose of reality. 

Why do I say that? Because Jay Powell’s press conference yesterday, coming after the release of the Fed’s policy statement, tried to whitewash the whole inflation picture.

The Fed chairman backed off aggressive rate hikes and he backed off aggressive bond sales from the Fed’s portfolio to curb the money supply. He basically sounded like President Biden, blaming inflation on Vladimir Putin and Covid rather than excessive federal spending, borrowing, deficit finance, and money printing.

As I said yesterday, Mr. Powell is the non-Volcker. The Fed institutionally will never admit its mistakes.

Mr. Powell did some fibbing yesterday in his news conference, because when he wasn’t sugar-coating the soft landing or blaming Mr. Putin for inflation, he never mentioned the wage-price spiral that has become embedded in the U.S. economy. 

That’s why he should appear before the new Disinformation Governance Board, along with Mr. Biden for his attack on the Trump tax cuts and assertions that $5 trillion more in BBB spending will curb inflation. In fact, I have a long list of people who should appear before the new truth board, but that’s for another time.

So, today was a dose of reality, because at 8:30 a.m. the Bureau of Labor Statistics released its productivity and wage costs report for the first quarter. It was a bad report.

It showed that labor costs have increased 7.2 percent over the past year. And the inflation rate for businesses increased 7 percent over the past year.

These are cold, hard facts: that wage increases, the likes of which we haven’t seen for four decades, are now embedded in the economy along with price increases that we haven’t seen in four decades.

This comes a day after the Fed’s big meeting and a news conference where none of this was mentioned.

So stock markets reversed and began to more properly worry that we have a very high and sticky inflation problem that is not magically going away overnight as suggested by the Fed, and central bank efforts to curb the wage-price spiral are going to be longer, more aggressive, and more economically painful than the government is telling us.

Along similar lines, bond rates jumped today. The benchmark 10-year Treasury increased 13 basis points to 3.05 percent, breaking the 3 percent barrier, also an acknowledgment that inflation is going to stay longer and be stickier than the Fed geniuses are letting on. 

Now, here’s a key point: When bond rates go up — take a deep breath — the present discounted value of future profits goes down. Got it?

In other words, rising bond rates bring down price-earnings multiples, which have been shrinking for several months. Profits are the mother’s milk of stocks, and actually they continue to rise. That is good.

The consensus for tomorrow’s job number is 380,000, which would be slower than the average 562,000 monthly gains over the past three months, but still a decent number.

We’re not in a recession yet, but it will be virtually impossible to avoid it. And, frankly, inflationary recession is the worst of all worlds.

History shows that high inflation ultimately leads to recession, and shrinking profits, and higher interest rates, and falling share prices. It’s not good.

I’ll repeat my view that the Fed has got to be far more aggressive, raise its target rate above the inflation rate, and start selling bonds in order to shrink the excess cash they’ve injected into the economy.

Also, my view is that the faster they move, the milder and shorter the potential recession will be. But the longer they wait and stall tough, Volcker-like actions, then the worse inflation is going to be. Interest rates will be higher, profits will sink lower, stocks will get hurt more, and the recession will be far deeper.

The key for the Fed is to get back to price stability. That is how to unlock economic recovery. Today’s 8 percent inflation needs to get back to 2 percent or less, but it’s going to be difficult, and if Jay Powell says otherwise he will have to face the misinformation truth board again.

Blaming Mr. Putin and Covid and the woman in the moon is not going to work. Being honest with investors and working people is a much better approach.

Now, it’s not all on the Fed. I know it’s too much to ask, but it really would be a good idea if Congress would freeze domestic spending. Another good idea: Make the Trump tax cuts permanent. A third good idea: Roll back the jihad against fossil fuels and deregulate the recent NEPA regulations that are preventing oil and gas production, pipelining, LNG exporting, and even development of highways, bridges, roads, and tunnels.

So think of this: If we had sound money, lower taxes, and deregulation, we would make this truly a growth economy.

Save America. The cavalry is coming. I hope they know what to do.

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