The Fed’s Jay Powell Gets It Right — One Time in a Row

The Fed chairman, Jerome Powell, gets it right — one time in a row.With all due respect to Mr. Powell, I have been among his toughest critics over the past four years — as the Fed got the inflation story completely wrong — when they were pouring in the money supply and essentially buying President Biden’s $5 trillion increase in federal spending and deficits and debt.The Fed first denied that there was an inflation problem… Then, they argued it was transitory… And by the time they got around to putting their foot on the brake — the cat was out of the bag, to the tune of 9 percent inflation.Over the course of the Biden term, prices rose by more than 20 percent, while wages increased by far less. Hence the revolt of working class folks of all colors and stripes — a revolt that elected President Trump.All that said, Mr. Powell in today’s press conference is talking very sensibly, and seems to have the story right on tariffs and inflation.As Mr. Powell put it today: “As I’ve mentioned, it can be the case that it’s appropriate sometimes to look through inflation if it’s going to go away quickly without action by us, if it’s transitory. And that can be the case in the case of tariff inflation.”The most overrated theme on Wall Street today is that trump tariffs are going to be inflationary. They will not. Mr. Powell is right — any price increases will be transitory.Think of it this way: if the price of a washing machine goes up because of a tariff — and a family goes out and buys the machine anyway at the higher price — that means they have less money to spend on other items.The washing machine price will go up, but some other price or prices will go down. It might mean that family won’t buy a TV set, or a computer, or something. So, one price goes up, families have less to spend on another good, and that price goes down. Yet the overall consumer price index of 80,000 items does not change.That’s what makes it “transitory.”The only way an individual price can lead to higher overall inflation is if the Fed turns on the printing press, or if the federal government goes on a spending binge.And if that were the case, then overall inflation will go up — whether there are tariffs or not — because inflation is fundamentally a monetary problem.And, by the way, if the Fed were to mistakenly turn the printing presses back on, the dollar would crash. And that would also raise the entire inflation index.Now, on this point, even though the Fed doesn’t target the dollar or foreign exchange rates, it’s worth noting that the price of gold today is $3,050. That is a warning to the Fed — to keep their monetary powder dry.And it seems that Mr. Powell will indeed keep the monetary powder dry — as he said today, quote: “We do not need to be in a hurry to adjust our policy stance” end quote.So, that’s Fed-speak that the central bank is not cutting interest rates — or increasing the money supply.Also, the Fed announced it will continue reducing its holding of treasury securities and mortgage-backed bonds, though they will soon slow the pace of decline.Yet that’s a good thing — because it will keep the money supply in check, which means the inflation rate should remain in check.And all that suggests that the Wall Street and liberal press hysteria over inflationary tariffs is a lot of hoo-ha.So, I’m going to applaud Mr. Powell — because he got it right… one time in a row.From Mr. Kudlow’s broadcast on Fox Business Network.

The Fed’s Jay Powell Gets It Right — One Time in a Row

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