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

The Fed cut its policy rate by 25 basis points to a 3.50–3.75% target after roughly 175bps of easing over the past year, a decision that produced three dissents (Stephen Miran wanting a 50bp cut, Austan Goolsbee and Jeffrey Schmid opposing any cut) and sparked a risk-on move (Dow +~500pts, S&P near highs, 10-year yields down ~3.5bp). Larry Kudlow relays President Trump’s criticism that the cut was too small and contends Fed growth forecasts (2.3% next year fading to 1.8%) are far too pessimistic, citing 2.1% productivity and 1.3% labor-force growth (implying ~3.4% potential GDP) and arguing that AI, supply-side reforms and lower oil (from ~$80 to ~$60) will further lower inflation and lift real growth toward 3–4% with inflation under 2%.

Analysis

The Federal Reserve cut its policy target by 25 basis points to a 3.50%–3.75% range after roughly 175bps of easing over the past year; the decision produced three dissents (Stephen Miran wanted a 50bp cut, Austan Goolsbee and Jeffrey Schmid opposed any cut) and triggered a clear risk-on response with the Dow up ~500 points, the S&P 500 near highs, and the 10‑year Treasury yield down about 3.5 basis points. Larry Kudlow relays President Trump’s view that the move was too small and contrasts Fed projections (GDP 2.3% next year, fading to 1.8%) with a higher-prospective-growth argument based on recent productivity (+2.1% pa) and labor-force growth (+1.3% pa), implying ~3.4% potential GDP and further upside from AI and supply-side policies. Energy dynamics are highlighted as a deflationary impulse: oil has fallen roughly 25% from $80 to $60 and, per the article, much of that decline has not yet been fully reflected in CPI, implying additional downward pressure on inflation and upward on real GDP if pass-through occurs. Market implications include continued equity upside if disinflation and productivity gains materialize, but the presence of Fed dissents and political pressure for larger cuts creates a meaningful tail risk of policy volatility that could roil rates and equities if inflation datapoints reaccelerate.

Key Decisions for Investors

• Consider modestly increasing exposure to cyclical and growth-sensitive equities and energy names given the risk-on market reaction and the thesis that lower energy prices plus productivity/AI upside could lift real GDP toward 3–4%,
• Exercise caution on duration: keep near-term liquidity and underweight long-duration credit until the Fed’s communication and dots clarify the path after three dissents and political pressure for larger cuts,
• Monitor CPI inflation and the 10-year yield closely — a delayed pass-through of the ~25% oil decline into CPI or a sustained rise in the 10-year would be signals to trim risky exposures, while confirming disinflation would argue for adding equity risk.