Economic guru Larry Kudlow doesn’t quite understand why the Federal Reserve reportedly is so worried about low inflation.
“Low inflation is a very good thing. Low inflation is great,” the veteran financial guru and former Ronald Reagan adviser told CNBC.
“It's the pathway to higher growth and real income,” said Kudlow, a Newsmax Finance Insider, radio talk-show host and CNBC senior contributor.
To be sure, as the world’s top central bankers gather in Wyoming this week, their relief about a stronger global economy will be tempered by a growing unease that inflation remains inexplicably low.
Inflation may be the most pressing riddle facing central banks, which are failing to meet their price mandates.
U.S. inflation fell to 1.4 percent in June, based on the Fed’s preferred gauge, and consumer prices in the euro area -- currently at 1.3 percent -- have wavered since the start of the year. Both central banks shoot for 2 percent inflation, although the ECB formally aims below, but close to, that level, Bloomberg reported.
Those glacial price gains come even as unemployment has dropped steadily, more than halving in the U.S. to 4.3 percent since its post-recession peak and declining to 9.1 percent from a high of 12.1 percent in the euro area. Inflation is also low in Japan, though sub-par price gains have been a longer-lived issue there.
“Why do we want higher inflation? I don't know why the Fed wants to raise the inflation rate,” said Kudlow, who served as the Trump campaign's senior economic adviser.
“The Fed should keep the dollar steady and I know they're going to normalize and they need a tax cut,” said Kudlow, who worked as Reagan’s budget deputy between 1981 and 1985.
“Prosperity and growth does not cause inflation,” said the radio host of "The Larry Kudlow Show" and author of "JFK and the Reagan Revolution: A Secret History of American Prosperity," written with Brian Domitrovic and published by Portfolio.
“If you cut corporate taxes and simplify the system, if you invest in infrastructure properly and you have fair and free trade,” the nation will easily experience 3 percent to 4 precent economic growth, Kudlow said.
“This is your road map and the sooner the White House can get back to this message, the better off they're going to be,” said Kudlow, who during the first term of the Reagan administration (1981–1985) was associate director for economics and planning in the Office of Management and Budget (OMB).
Meanwhile, Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi will be among the officials addressing this year’s installment of the annual conference hosted by the Kansas City Fed.
The summit, held at a Jackson Hole mountain retreat, comes as central banks in advanced economies creep toward the policy exit after years of unprecedented easing, even with outlooks are clouded by stubbornly tepid inflation, Bloomberg reported.
Prices have been slow to pick up despite solid growth and falling unemployment, suggesting that the long-observed relationship between inflation and labor-market slack might have frayed. That puzzle will likely surface as the conference debates this year’s theme of “Fostering a Dynamic Global Economy” against the backdrop of the Grand Teton mountains.
(Newsmax wires services contributed to this report).
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