Despite a big stock market gain today after wildly volatile trading that saw the Dow swing roughly 1,500 points down and then up, there’s no getting around the fact that the consumer price report came in far worse than expected in its final pre-election reading. Short covering seemed to take over for the rest of the day after a big drop on the news.  

This kind of volatility is an unhealthy sign. Caveat emptor. Whatever the reasons, I think the outlook for risk assets — stocks and bonds — is a precarious one in the months ahead.  

The inflation arithmetic was very bad. Overall, CPI is up 8.2 percent for the last year. The core CPI excluding food and energy is up 6.6 percent, the biggest rise since August 1982. There were numerous signs of strong and broad-based price pressures throughout the report.  

The Cleveland Fed’s median CPI, whose expenditure weight is the exact 50th percentile of all price changes, rose by 7 percent year on year. It continues to rise steadily month after month. 

Looking under the hood of the CPI, grocery prices are up 13 percent on the year, shelter is up 6.6 percent, used car prices fell 1.1 percent in September — but car parts are up 0.8 percent, insurance is up 1.5 percent, and maintenance and repair are up 1.9 percent. It’s going to cost you more to keep that car on the road.  

Oh, by the way, new car prices are up 0.7 percent for the month. Medical care services are up 1 percent for the month. Overall services prices are up 7.4 percent for the year. Excluding energy, they’re still up 6.7 percent.  

Goods prices have calmed, but behind the big rise in services is the wage component, with the Atlanta Fed wage tracker up 6.7 percent yearly. People forget the importance of rising wages in these services prices. It’s a major part of the ongoing problem.  

I hate to bore everybody with all these numbers, but factoids are important. 

Meanwhile, overall real median weekly wages since January 2021 are down 5.5 percent. Real hourly wages have fallen 18 straight months, with the latest yearly read dropping 3.8 percent. 

In other words, working people are losing big time. Their wages are rising, but inflation is rising more. This continues to be the soft underbelly of the Biden economy: Middle-class people are getting slammed by higher prices. 

If you think the inflation arithmetic is bad, the monetary arithmetic is just as bad — if not worse.  

True enough, the Federal Reserve is knocking out 75-basis point rate hikes, with more to come in November and December and probably into next year. Were it up to me, I’d be doing full percentage point hikes. Take the Band-Aid off, pour some cold water on the cut, and it will heal. 

There is still a huge pool of excess money out there. That’s what the Fed has failed to deal with.  

Total bank reserves are running at $3 trillion, which is twice as much as the $1.5 trillion pre-pandemic. Reverse repos that the Fed drains each day but then puts back at nightfall are running at $2.6 trillion. That’s roughly nine times the mop-up operation pre-Covid.  

The Fed says it’s running off bonds at a rate of $95 billion a month, but in reality it’s not. In the past four months, it’s only taken down $164 billion. That’s not enough. The overall balance sheet is just shy of $9 trillion. Pre-pandemic it was $4 trillion. 

If inflation is defined as too much money chasing too few goods, we still have way too much money. That is the key problem. It’s driving up prices, driving up wages, and driving down living standards. 

I spoke briefly with Art Laffer today, and he said the Fed should just let interest rates seek their own level, while the Fed needs to just mop up excess money.  

Now, last point: One way to absorb excess money is to produce more goods, but we are not. Instead, the Biden socialists have been on a spending tear. Not a production tear. A spending tear. 

The CBO just repriced student loan cancellation at $400 billion. The actual price tag will actually probably be between $500 billion and $1 trillion. The semiconductor bailout bill was almost $300 billion. The so-called Inflation Reduction Act may wind up with $800 billion in renewable tax credits. The budget deficit has been re-upped to $1.4 trillion this year. Business taxes have been raised. The regulatory war on fossil fuels and business in general continues.  

President Biden is blaming the Saudis and OPEC, when all he has to do is unleash production. There’s a novel thought.  

The president says inflation is coming down, but his spending keeps going up. Instead of work effort, we have an end to workfare. Instead of incentives to grow the economy, we have racial justice and ESG boards proliferating throughout the federal government.  

The best racial justice I can think of would be growing the economy by 5 percent or 10 percent coming out of the recession. After the successful Trump tax cuts, minority unemployment crashed, poverty crumbled, and inequality declined. I’d call that racial justice.  

Growth is good. Growth will soak up excess money. Supply-side growth will make the Fed’s job much easier. The Fed is no angel. It supported all this crazy federal spending, and of course it’s in denial about the inflation problem.  

Now, really the last point: The election is in a couple of weeks. Inflation’s still the no. 1 problem. Inflation and the economy, then crime. I do believe the Biden Democrats are heading for a whupping. 

They deserve it. Socialism never works. The cavalry’s coming. 

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