LARRY KUDLOW: Why should the Fed get tangled up in election-year politics?

Are Jay Powell and the Fed going to juice the election-year economy by cutting interest rates? 

You've got Democratic senators and House members and various civilians who are calling for the Fed to raise their inflation target from 2% to 3%. As that flawed argument goes, a 3% target would give the Fed more elbow room to start cutting interest rates and don't forget that President Joe Biden himself said the day after his bellicose, overcaffeinated State of the Union: "I bet you those rates come down more, because I bet you that that little outfit that sets interest rates is going to come down."  

So, there you have it. "The Big Guy" wants a little juice from the Fed to get re-elected. Does Jay Powell care about Joe Biden? Well, Powell's term as Fed Chair goes to May 2026. So, there's nothing Joe Biden can do to him, because Biden will be retiring in January 2025 and Jay Powell has indicated that he won't seek a third term anyway. 

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For all the cynical talk about how the Fed somehow must bend to the political whims of the president and his little minions, I actually think Powell is immune from that kind of thinking.  Why should the Fed get tangled up in election-year politics? Especially because the actual evidence on inflation does not point to lower Fed interest rates. That's the important part. 

 To be sure, the year-on-year inflation has declined from 9% to somewhere between 3 and 4%, but, even so, the actual level of consumer prices is up over 18% during Biden's tenure and that's driving typical families crazy. 

Measured from February 2021, groceries are up 21%, gasoline up 30%, cars up 20%, airline fares and transportation services up 34% and those are just a few categories.  

The lagging impact of that 9% CPI is going to haunt working folks for years to come. That's Joe Biden's problem. That's the Achilles heel of "Bidenomics," "Bidenflation" and Biden’s re-election. A couple of rate cuts by the Fed will not bail Biden out and indeed could make things worse.  

His opponent Donald Trump will tee off on the Fed and Biden if they start juicing the economy without any economic reason to do so. Anyway, here are a couple of numbers that should make the Fed think twice about stepping on the accelerator again. 

 Over the past three months, the CPI has jumped up 4% at an annual rate, twice the Fed's 2% target. Jay Powell's favorite measure – something called "core services excluding rent" is up 6.9% over the past three months. Commodity indexes are starting to jump again, with the CRB up 30% since mid-December. 

The price of gold has moved from $1,800 to $2,150, a 20% increase and then, think of this: if you had $1,000 and you held it for 20 years, even at a 2% inflation rate, your that $1,000 would drop 44% to $560. The point is, even 2% inflation is no bargain. Price stability would be a better idea and then, on top of that, when you look at Biden's new budget, he continues to spend like there's no tomorrow, boosting inflationary demand. 

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Plus, he's taxing everything that moves, which will choke off incentives to produce the supply of goods. When demand outstrips supply, inflation goes higher. Another reason why the Fed should cool its jets. Of course, there's always cynicism about the Fed, but a couple of Sundays ago on "60 Minutes," Jay Powell said, "We do not consider politics in our decisions. We never do and we never will." 

That may not be the last word on this subject, but it's a brave statement. Anyway, Joe Biden needs a lot more than a couple of interest rate cuts to bail out his re-election and you can take that to the bank. 

This article is adapted from Larry Kudlow’s opening commentary on the March 15, 2024, edition of "Kudlow."