LARRY KUDLOW: Mr. Trump, please give us a transformational Fed

• Core inflation metrics show significant cooling: 3-month core PCE at 2.3% annually, 3-month core CPI at 1.6%, and unit labor costs barely above 1% over the past year
• Kudlow contends the Fed's economic models are flawed, arguing that growth and low unemployment do not cause inflation, while Powell incorrectly obsessed over tariff inflation that has not materialized
• Full cost expensing is driving business capital investment and a productivity boom that is counter-inflationary, but the Fed refuses to acknowledge these supply-side dynamics

Summary: Larry Kudlow Calls for Transformational Fed Leadership Change

Fox Business commentator Larry Kudlow criticized Federal Reserve Chairman Jay Powell's monetary policy stance, arguing the Fed is ignoring clear disinflationary trends in favor of outdated economic models. Kudlow praised Fed board members Stephen Miran and Chris Waller for dissenting in favor of a 0.25 percentage point rate cut.

Key Economic Data:

• Core PCE (3-month): 2.3% annually and declining
• Core CPI (3-month): 1.6%
• Unit labor costs: barely above 1% year-over-year
• Goods prices: below Fed's 2% target rate

Main Arguments:

Kudlow contends the U.S. economy is experiencing a "productivity-led, supply-side boom" driven by full cost expensing that promotes business capital investment. He argues declining energy prices, including gasoline, are counter-inflationary, while Powell's concerns about tariff-driven inflation have not materialized.

Market Implications:

The commentary addresses President Trump's Davos question about why positive economic news rattles markets, attributing this to fears the Fed will raise rates and halt growth. Kudlow references David Malpass's Wall Street Journal piece questioning why U.S. bond rates exceed those of Japan and China despite America's superior economic fundamentals and stronger credit position.

Key Figures Mentioned:

Treasury Secretary Scott Bessent reaffirmed strong dollar policy. The dollar index remains stable around $100, with Kudlow seeing no currency crisis.

Conclusion:

Kudlow urges President Trump to appoint a "transformational" Fed chair who will reject current models linking growth and low unemployment to inflation.