LARRY KUDLOW: Mr. Trump is a better forecaster than all of the Fed’s economists put together

Over the past year, the Fed lowered its target interest rate by 175 basis points. It now stands at three-and-a-half and three-quarters percent.

It is worth noting that in today’s meeting, three disagreements occurred. Trump’s man, Stephen Meiran, wanted a half-point cut. Obama’s man, Austin Goolsbee, did not want any rate cuts. Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, also voted against lowering interest rates. Stock markets rose with the Dow Jones up nearly 500 points, the S&P 500 nearly hitting a new high, and bond yields fell, including the 10-year note, which fell by three and a half basis points.

“You know, growth doesn’t mean inflation. We should be able to do a lot better than three and four. We’re scheduled to get to four percent. I would say he hit a fairly small number that could have been at least doubled,” Mr. Trump, as the nation’s top Fed watcher, told business leaders in real time. So, Mr. Trump wants lower interest rates and I think he has a very good point.

The Fed’s economic forecast for next year rose to a measly 2.3%. It then declines to the usual rate of 1.8% over the next two years. Inflation is moving slowly towards 2%. But their growth estimates are truly laughable. Here is one way to look at GDP which should be 3-4% instead of 1.8%. Over the past three years, productivity has grown by 2.1% annually. And by the way, this doesn’t include the massive AI impacts to come. Then the growth of the labor force during the same three years reaches 1.3% annually.

Adding the two together, you get 3.4% growth in real GDP. This is a widely accepted construct, but AI could jump these numbers much higher, as could Trump’s platform of supply-side tax cuts, deregulation, and reciprocal fair trade. Mr. Trump has an inflation-centric view of energy. And he’s right. Low energy prices are permeating every nook and cranny of the economy, including food.

Therefore, the price of oil fell from $80 to $60 this year. That’s 25%. Very little of that made it into the CPI inflation index. But it’s coming. Just like gasoline under $3. Lower inflation adds to real GDP. Just like productivity and tax cuts on the supply side. This means you can achieve 4% growth with an inflation rate of less than 2%. It also means that Mr. Trump is a better forecaster than all the Fed economists combined.