Trumpian growth is the supply-side cure to "Bidenflation" and that's the subject of the riff. Nobody really knows what drives stocks up – or down – in the short run. That's why I have long been a believer in a buy and hold index fund strategy, i.e. passive investing. 

Many disagree, and I respect that, but that is still my view. All that said, it is noteworthy that the Dow Jones index has dropped 9 straight days – for the first time since 1978. Over half of the Dow decline is the function of a 20% drop in United Health Group, following the heinous murder of their insurance CEO Brian Thompson. But aside from the United Health tragedy, roughly two-thirds of the Dow components have fallen during this 9-day selloff – including NVIDIA, which has dropped 11%. 

Nobody should push the panic button on the stock market. The S&P 500 has been roughly flat during this Dow selloff period, but the Dow drop does give me an opportunity to raise a couple of economic policy issues – that may or may not have anything to do with the selloff. 

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Nonetheless... I think the Federal Reserve will be making another mistake – when they drop their target interest rate tomorrow, as is widely expected, and I also worry that the Trump administration and the Republican Congress will delay its tax cut plans.   

Again, this may or may not have a thing to do with the Dow correction, but, regarding the Fed, an interesting Breitbart News story speculates that some on President Trump's economic team are warning that inflation risks may be underestimated, Jay Powell should be careful with these rate cuts and "Bidenflation" is not dead. 

Essentially, the data shows that in the last 6 months or so, various inflation measures have not only stopped falling, but have actually ticked up. CRB commodity prices are up 16% over the past year. Gold and silver prices are up nearly 30% over the past year. 

Money supply measures are re-accelerating over the past 3 months. Asset prices, especially stocks, have been booming at least until recently. There's a lot of liquidity floating around right now. Profits are the mother's milk of stocks, at least in my way of thinking – and they have been solid, but the original Trump post-election rally was based on the hope that tax cuts and deregulation would boost business profits even more. 

That's not to say the Trump plan won't be implemented, but there could be a creeping concern that it may come way later in the year – and that could cloud the outlook for the economy and the stock market next year or even going into 2026. These are concerns. You can be sure that President Trump and his team don't want the Fed to deliver a higher inflation rate next year. 

You can be equally sure that the new administration doesn't want a stagnant economy. So, I have a supply-side cure: harking back to the late Robert Mundell, who won a Nobel Prize in economics, and was a dear friend and mentor. 

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The supply-side cure for inflation is to lower marginal tax rates and minimize economic regulations on business, thereby creating new incentives for work effort, investment and growth. In other words, produce more goods, and that by itself would lower inflation. Second, Mundell would argue to strengthen the real value of the dollar by printing fewer dollars. In today's terms, that means the Fed should cut its balance sheet from $7 trillion to $5 trillion. 

The Mundell combination would generate more goods chasing less money. That is a cure for faster Trumpian growth and ending "Bidenflation" once and for all. Think of it. That's the riff. 

This article is adapted from Larry Kudlow’s opening commentary on the Dec. 17, 2024, edition of "Kudlow."