The Federal Reserve made news this past week in two separate events. The first came with the Fed’s policy meeting on Wednesday, when the central bank gave no hint that it would taper or slow its QE bond purchases any time soon. Wall Street believes the Fed will taper in September. My thought is that tapering is likely to come in December, or perhaps not until the new year. (More on that logic in a moment.)

The other big Fed event occurred when President Obama gave a strong defense of his former top economic advisor, Larry Summers. In front of a full caucus of House Democrats, Obama offered a full-throated rebuttal to the attacks of left-wing and feminist groups who have been coalescing around current Fed vice chair Janet Yellen. Obama told the Democrats “not to believe everything you read in the Huffington Post.”

Of course, with Ben Bernanke’s term ending in January, this all about the debate over a successor to the Fed chair. It’s a timely topic. But here’s the problem for Mr. Summers: Even though Obama has yet to make a choice on the matter, the president’s strong defense of Summers reduces the likelihood that Summers will be appointed. Why? Because Summers now looks like Obama’s man, even if the president hasn’t yet said so. 

Read my full column here. 

On June 9, 2013, Larry Kudlow was awarded an Honorary Doctor of Laws Degree from the University of Rochester and delivered the 2013 commencement speech for the University of Rochester Simon School of Business. Below is the full text of that speech.

Thank you . . . Thank you everyone.

It is an honor to be with you all, to be here with your distinguished leaders, with the Class of 2013 and, for me, returning to my alma mater is an emotional moment.

It has been quite a while, too long, frankly, since I have been back.  But I’m honored to be here, with all of you, our graduates, and to have this opportunity to give back to a university that has meant a lot to me. Today, I would like to speak to you about two men, two leaders, who had an important impact on my life and on the life of this nation: Bill Simon, our country’s 43rd Treasury Secretary, and Ronald Reagan, our 40th President of the United States.  And I am going to speak to you, briefly, about them within the context of two ideas, which are freedom and liberty. It is often said that commencement speakers are all liberals.  Not true. I am offering you a conservative prospective and I hope you will listen and reflect on my remarks.

Let me begin with this point.  This is the William E. Simon School of Business.  I knew Bill Simon.  I knew him very well.  I enjoyed a lifelong connection with him before he passed away in 2000, and it leads me to say how proud you should be to have your degree with his name at the bottom.  Bill Simon was a great Treasury Secretary within an administration full of, forgive me, too many dopes and economic illiterates.  If they had listened to Bill, we would not have had to endure all the bloody, damn hell of stagflation within the early and middle 1970s, when I first started out in the workforce.  That is how good Bill Simon was.

After he stepped down as Secretary of the Treasury, Bill wrote two best sellers: A Time for Truth and A Time for Action, and those ideas of freedom and liberty that he championed became synonymous with his legacy. Now, my first memory of Bill began with a phone call at 6:00 a.m. in 1977, when I was staying in a hotel in Denver.

It was Bill and I heard a voice bark into the phone, “Is this Larry Kudlow?”  I said, “Yeah.”  I mean I’m sorry but it was 6 a.m. in the morning. Well, he was calling from New York, and he said to me, “I just read something you wrote.  A friend of mine passed it on. You’re a voice in the wilderness, and I want you to get back here so we can have lunch.  I have work for you to do.”  Now, mind you, I already had a job at the time. But, again, it was Bill Simon.  So, we had lunch, and I got to know him.  We played a lot of tennis and paddle tennis together, but here is the key: I got to spend hours with Bill as one of his principal speechwriters when he was out of office.

With Detroit filing for Chapter 9 bankruptcy, everybody knows major root-canal cutbacks are coming. Cutbacks of out-of-control government spending, pensions, and health benefits. Major cutbacks. We know that.

We also know that the downfall of Detroit is again proof positive that the public-union collective-bargaining model has utterly failed. Unions just loot the benefit lock box at taxpayer expense. That was the message of Governor Scott Walker’s victorious crusade in Wisconsin. If any good comes out of the Detroit debacle, it will be the spread of that message across the country.

But there’s another important point here. If Detroit is to truly recover, a growth program of tax-free investment incentives must be part of the process. Specifically, Detroit should be made a tax-free enterprise zone, along lines proposed years ago by the late Jack Kemp. 

Read my full column here. 

No matter how many monetary officials try to sugarcoat it with damage control, the fact remains that the Ben Bernanke Fed wants to end its quantitative-easing bond-buying operations over the next year. That was Bernanke’s statement at his last press conference, and I’ve seen nothing to contradict it.

As everyone knows, stocks and bonds collapsed right after Bernanke let the cat out of the hat. Fortunately, markets have stabilized since then. But my hunch is that unless the economy really falls back into a quasi-recession, the Fed is going to go ahead and end its bond purchases.

The central bank will more than likely begin to taper in September. And it will do so based on roughly 175,000 new jobs each month, which is consistent with a 2 to 2.5 percent economy.

But as the Fed implements this policy, there’s going to be a lot more volatility in the financial markets, with significant downside risks for stock prices and upside potential for longer-term interest rates. 

Read my full column here.

In the aftermath of Ben Bernanke’s announced timetable for ending Fed bond purchases, long-term interest rates have jumped up while stock prices have cratered down. As I wrote yesterday, I think the Bernanke plan is premature — especially in a 2 percent economy with falling inflation and inflation expectations.

But just to get a little wonky on the interest-rate story, it’s noteworthy that 10-year Treasury notes have moved up about 70 basis points year to date. Currently they’re around 2.50 percent.

Most of that rate rise — more than 50 basis points — is coming from a jump in Treasury inflation-protected securities, known as TIPS. Now that could be a good thing, as rising real interest rates signify a stronger economy. The trouble is, on balance, it’s real hard to find strong evidence of a stronger economy. Instead, as economist David Goldman has noted, investors are bailing out of TIPS because they’re not worried about inflation — which, by the way, is running about 1 percent.

So selling TIPS bonds has raised market interest rates. And that, in turn, has done considerable damage to the stock market and perhaps will pinch the economy.

But the story doesn’t end there. So called inflation break-even spreads have been narrowing significantly. This includes 10-year TIPS implied inflation, as well as 5-yr 5-yr forward inflation expectations. They’ve all dropped about 60 basis points, which is roughly equal to the rise in real interest rates.

So one could argue — as a warning to Mr. Bernanke — that rising rates is a deflationary event, not a growth event. And if the Fed is too hasty in tapering its bond purchases — and after all, tapering is really tightening — interest rates may continue to rise for the wrong reasons, namely deflation rather than faster economic growth.

There is no doubt that the Fed has got to end its bond purchases and eventually figure a way out of its oversized bond portfolio. In recent months I have commended Mr. Bernanke for producing low inflation, after many of us wrongly predicted higher inflation. But as St. Louis Fed head James Bullard said this morning, the low-inflation trend may be too much of a good thing. And bond-purchase tapering — excuse me, I mean tightening — could generate deflationary impulses that could damage the economy.

As an old gold-watching guy, I am obliged to note that the crash in the gold price is moving side by side with the decline in inflation expectations.

All this is why I believe the Fed should move extremely slowly in shifting policy in our still fragile economy.

Without intending to — and perhaps without even realizing it — the normally cautious Fed head Ben Bernanke may have launched a major tightening policy during his news conference on Wednesday. The de facto policy shift immediately sparked a rout on Wall Street, with stock, bond, and gold prices all plunging. And it’s going to shake up confidence even more, perhaps even slowing the already anemic recovery.

Mr. Bernanke has stumbled into a major policy mistake.

Read my full column here. 

When President Richard Nixon collided with the Watergate scandal he was a very unpopular man. The nation at the time was suffering one of the worst recessions in history, and one of the highest inflation rates, too. So Watergate sunk Dick Nixon, but for good measure, the economy sunk him even more.

Roughly 25 years later, Bill Clinton was impeached because he lied about his affair with Monica Lewinsky. But despite his personal transgressions, he never really lost his popularity. Why? The economy was roaring.

So you might say scandals are less scandalous during prosperity, and more scandalous during recession.

As for the current president, he finds himself with a precariously thin margin. As yet, there is no clear and direct link between President Obama and a trove of political scandals. Not yet. And while he doesn’t have a recession on his hands, not even the president’s strongest supporter believes we’re in some kind of Reagan-Clinton economic boom.

Read my full column here. 

Apart from criminal prosecution, the best way to strip the power of politics and corruption from the IRS is to initiate broad-based, pro-growth tax reform and simplification. It’s the complexity of the tax code that nurtures the corruptness of the IRS.

There’s a buzz in Washington about this possibility, where both Democrats and Republicans are interested in reform. We need a simpler and flatter tax code. We need to get rid of the crony-capitalist insider deductions and exemptions, which have given the IRS so much power. These deductions and exemptions are precisely what nurtured the political corruption that led to a major scandal. 

Read my full column here. 

An independent special counsel with subpoena power is the only possible solution to the IRS mess. This counsel must find out exactly what happened and who was involved, and then come up with a fix so it never happens again.

Read my full column here.

At the end of the day, the battle over immigration reform is not about dollars and cents. It’s about the soul of a nation. President Reagan reminded us that America must remain a “beacon” and a “shining city on a hill” for immigrants who renew our great country with their energy while adding to economic growth and prosperity.

And here’s a quote from Jack Kemp: “Americans and immigrants share the same value of work, family, and opportunity. There is no reason to fear the newcomers arriving on our shores today. If anything, they will energize what is best about our country.”

It strikes me that the Republican party has lost its growth-and-opportunity message in recent years, and has replaced it with a very austere vision. Debt, deficits, and budget-cutting all have their place in the economic-policy debate. But the GOP has forgotten that strong economic growth leads to a balanced budget, not the other way around.

The GOP must reclaim the growth-and-optimism message of Reagan and Kemp. Immigration reform is part of that message. 

Read my full column here. 

The really good news from April’s employment report is that all the pessimistic, end-of-the-world, spring-swoon forecasters were wrong. It wasn’t a fabulous report. But it handily beat Wall Street expectations. Stock markets soared on the news.

The bad news, however, is that the U.S. continues to fall further behind its own long-term trends for jobs and economic growth. And lately, hours worked — a key labor measure — have begun to fall. 

Read my full column here.

In the last two days gold has plunged so deep that it’s being called the worst drop — at least in percentage terms — in 30 years. That brings us back to the early Reagan period, when falling gold was regarded as a good thing.

Back then, lower gold showed inflation coming down after the horrible 1970s. It also showed confidence in the economy recovering and greater respect for the dollar. Over the next two decades, in the ’80s and ’90s, gold basically dropped in round numbers from $800 an ounce all the way to $250. Stocks soared. So did jobs and the economy. It was one hell of a good period.

But markets have reacted a bit differently this time. On Monday, stocks fell over 200 points in tandem with gold’s $150 drop. Maybe it was tax-selling in the stock market. Or the constant rumor of Cyprus gold-selling to raise bailout cash. But investors aren’t happy. It doesn’t look like the ’80s and ’90s. And I’m hearing the usual cacophony of impending catastrophe.

But I’m not buying it. 

Read my full column here.

No matter how you slice the Obama budget pie, the inescapable fact is that the president wants to get rid of the roughly $1 trillion budget-cutting sequester and substitute in a $1 trillion-plus tax hike. In other words, more spending, more taxing. Growth-busting. The GOP should just say no.

And let me provide some counsel to my Republican friends in Washington, in particular in the House. Balanced budgets don’t create growth. This mantra is wrong. It’s growth that creates balanced budgets. 

Read my full column here. 

Many profound and detailed admiration pieces will be written about the late Margaret Thatcher, and they’ll be much deeper than this one. But I want to get on record with my own esteem for Mrs. Thatcher, whose character, philosophy, and achievements made her one of Britain’s greatest prime ministers.

Way back in the early 1990s, at a National Review conference on the eastern shore of Maryland, I had the great honor to serve on an economics panel that Mrs. Thatcher moderated. (Craig Roberts was also on that panel, although I can’t remember the name of the third panelist.) The topic was free markets and freedom, areas in which Margaret Thatcher made huge contributions, so I had a lot to live up to. And how did it go? Well, following the discussion, I got to sit next to Mrs. Thatcher during the luncheon. And she told me, “You know, Kudlow, you did rather well in that talk.” Naturally, I was thrilled.

Margaret Thatcher fought socialism in England and unyieldingly promoted the free-market views of Nobelists Milton Friedman and Friedrich Hayek. She stopped the destructive British labor unions dead in their tracks. With every bone in her body she attempted to limit government by lowering spending and taxation. She opted for big-bang financial deregulation. And she put London back on the map as a world banking center.

“Freedom” was always her watchword.

She also adored Ronald Reagan. And the two of them formed an extraordinary partnership for freedom and free markets. Working together they helped bring down the Soviet communist system. And it was a peaceful bring-down at that.

Thatcher saw Gorbachev first, and she reported to Reagan, “We can do business with him.” Reagan did, although he refused to back down on SDI. And as the American economy roared in response to Reagan’s own free-market supply-side policies, the Soviets were out-produced and eventually folded.

Mrs. Thatcher famously said, “The trouble with socialists is that they always run out of other people’s money.” That dictum really stands the test of time, doesn’t it? Running out of other people’s money? Today?

The age of big government has once again, at least temporarily, reared its ugly head. It’s a great battle for all the economies around the world. That’s one of many reasons why we will miss Margaret Thatcher. She did not go wobbly. 

Apropos of my column of a week ago — “Has Bernanke Gotten the Story Right?” — this week’s paltry GDP revision again backs up the actions of the Federal Reserve chairman and his market-monetarist supporters.

Read my full column here. 

Last Saturday, I had the pleasure of interviewing Jimmy Kemp on my syndicated radio show. Jimmy is the son of the late great Jack Kemp, and he now runs the Jack Kemp Foundation. And like his dad, Jimmy is also a great advocate for free enterprise. During our talk, Jimmy and I discussed his dad, free-enterprise zones, the Reagan 1980s, and economic growth.

Here’s the transcript:

Kudlow: I was talking about Jack Kemp my mentor, the late Jack Kemp, the great Jack Kemp, my friend and mentor, and his great message of economic growth and opportunity for all.  I want to emphasize those last two words- for all.  Nobody, in my lifetime, in either party, has reached out with a message of hope, growth and opportunity to minorities better than Jack Kemp. And I want to bring in my pal, Jimmy Kemp, who runs the Jack Kemp Foundation because, Jimmy is now the keeper of the scrolls and he is also a great friend.  Jim, how are you buddy?

Kemp: I’m great Larry, how are you?

Kudlow: I’m okay uh you know, there’s some scattered, you see some scattered columns and websites that talk about where’s the Jack Kemp, the new Jack Kemp in the Republican Party but, it was Jack’s message- I gave a talk, it was very funny, I gave a talk to the Wall people, the Manhattan, New York Republican Party and I’ve done this a little bit on the Kudlow Report, we had a whole Jack Kemp segment two nights ago-

Kemp: I saw it.

Kudlow: Alright, what I remember, let’s put the tax cuts aside for a minute, as important as they are, what I remember, particularly when Jack was the Secretary of HUD, because I was one of his volunteer kitchen cabinet there; Jack wanted Empowerment Zones-

Kemp: Enterprise Zones.

Kudlow: Enterprise Zones, tax free Enterprise Zones-

Kemp: Not tax credits, but tax free, you’re right.

Kudlow: And as much home ownership as possible for minority groups.  Jack went to the projects, he actually went to the projects in Detroit, Chicago, L.A., and New York.  He worked with Charlie Rangel, the great, black Congressman in New York City and we developed what became Empowerment Zones here in New York City.  My wife’s art studio is in one, I mean am I wrong here?  Is my memory betraying me?

Kemp: No, no of course not. And part of what Dad understood is that- good policy, as great as Kemp-Roth was at cutting tax rates at that time, which was, reflecting on it, it was obvious tax rates were confiscatory. You couldn’t have them that high and have a growing economy. But he also knew at the same time, back in the 70’s, way before he was at H.U.D., but in order to have good policy it can only be policy that can be passed and in order to pass it he had to get Democrats. Larry, he was a Republican in a Democrat controlled House of Representatives and yet they had President Reagan in 1980, but he had to convince people, like Charlie Rangel, that he really did care. And that these policies that were “conservative,” he liked to call them liberal, because they were intended to free people to provide equal opportunity and knew that tax rates went along with providing that equality of opportunity in the housing sector, for people starting businesses in ghettos or barrios or poor urban areas, wherever they were. He knew that capitalism without capital is nothing but an ism, as Jesse Jackson had said and you had to get capital to people who would do something with it. He trusted people, and, as you pointed out, all people, not just rich folks who went to good schools.

Kudlow: See that’s the thing. Now the Republican Party is, some people in the Republican Party are trying to open up immigration reform. I’m all for it. Your dad believed that immigrants were a positive force.

Kemp: E pluribus unum.

Kudlow: Right. He would have been on the right side of that issue today. But, you know, Jimmy, It’s just like reaching out and saying okay we’re going to give you a green card, that’s not really the answer. I mean what I’m saying is Jack Kemp had a set of policies, besides low tax rates, he had ownership policies, he had empowerment policies, he had, let’s see, no capital gains tax if you moved a business into an Empowerment  Zone, which would attract capital and people. There was human capital and financial capital. Kemp visited the projects, I want to emphasize it, Kemp met with La Raza Hispanics. Kemp visited the projects. When we were negotiating back in , I don’t know when this was Jimmy, 1991, Jack sent me to a couple of meetings with La Raza with his Rep. to try to figure out how to get a zero capital gains tax and La Raza backed it. They actually backed it. Now, Republicans don’t do that anymore. They don’t show up in the projects, they don’t go to a La Raza meeting, they don’t get photographed with Hispanic leaders and black leaders anymore. That was stuff Kemp did, it was great stuff. Why doesn’t anybody do that now, follow his example

Kemp: Well, the greatest example and a guy we all love and respect, Paul Ryan, who worked for Dad. H made the calculated decision to focus on our incredible budget deficit and the spending that was out of control in the entitlement programs and led, Larry as you know, it took him away from the main thrust of Dad’s career. And there isn’t anybody who has jumped into that, really opportunity, the way that Dad took the reins, and there are a lot of great leaders today. I’m not discouraged. Part of our purpose at the Kemp Foundation is to help support or political leaders and we’re certainly not pessimistic because we certainly couldn’t have the name Kemp associated with us if we were. You’ve got governors who are doing the right thing, you’ve got plenty of congressmen and senators, but we do need a more robust discussion of the components of an economic policy because there should never be any discussion of a new normal, I know you hate that phrase. This country has too much capability and abilities, not only in the board rooms, but in classrooms around the country.

Kudlow: Growth should be unlimited. Just to reset the table, we’re talking to Jimmy Kemp who is the president of the Jack Kemp Foundation. I am holding up, you see these stories about Jack Kemp, one story was written, “We need entrepreneurs like Jack Kemp.” Okay, I’m fine with that, but I don’t want to miss the essential point here, the essential point; Jack’s goal was growth, in other words, if you grew the economy rapidly through lower tax rates, less regulation and sound money, if you grew the economy that was a weapon to shrink the budget deficit and the debt. That was Jack’s way out. That didn’t mean he’d vote for spending bills that were unnecessary, but he understood that debt to GDP, that Republicans obsess about all the time, you solve that, in some sense, by growing the GDP.

Kemp: Sure, you want a bigger pie.

Kudlow: Bigger pie! And secondly, with the debate about so called Republican outreach to minorities look at what Kemp did. Kemp didn’t do it just to win votes, he had a program. Let’s go through it again, it was home ownership, it was enterprise zones, it was tax-free enterprise zones. He would go to the meetings and the rallies and meet with the leadership. He already showed the way. What we need is a Kemp biography here to let people read this stuff and that’s what he did, he was a one-man band. Some Republicans made fun of him, the country club crowd made fun of him, Jimmy, but we should follow his lead now.

Kemp: Well, yeah, the Kemp Foundation has a biography in the works and then we’re also releasing, in 2013, all of his speeches, which were previously released in a volume called the American Idea. And American Renaissance, we’re going to put out as well. The American Idea will have all of the speeches that were in it previously, but a bunch added to it.

Kudlow: Who’s doing the biography Jimmy? We only have 25 seconds. Who’s doing the Biography Jimmy?

Kemp: We’ve got Mort Kondracke and Fred Barnes working on it.

Kudlow: I did the oral history. I want to see that. I want to work on that biography.

Kemp: Alright.

Kudlow: Jimmy Kemp, president of the Jack Kemp Foundation. That was Jack Kemp’s message, hope and opportunity for everybody, including minorities. I’m Larry Kudlow and we’ll be back with some budget talk on the other side of the break.

Last night on The Kudlow Report I asked Dr. Ben Carson if a run for office is in the cards with his retirement only a few months away. Is he the conservative who can save the GOP? Might he try for Carl Levin’s open Senate seat in Michigan? Here’s what he had to say:

People keep trying to put me into politics, and I really don’t want to do it. I don’t think I really fit the mold. I don’t believe in political correctness. And I certainly don’t believe in getting into bed with special-interest groups. I just don’t think I would fit.

While that sounds like a resounding “no” to a political career, he did leave the door open a little bit as the interview progressed.

And how about television? Here the doctor was more optimistic:

I enjoy television, because I think it is a way to be able to reach the largest number of individuals. And I think we’re in a situation in our country right now where we need . . . reasoned voices to help educate people.

We also discussed jobs, Obamacare, education, affirmative action, taxes, and more. Watch the full interview here:

The most important point in Ben Bernanke’s Wednesday press conference was the announcement that the Fed will adjust the amount of monthly bond purchases according to economic conditions. In other words, an improving economy with stronger payrolls and lower unemployment could lead to a decline in Fed bond buying, from $85 billion a month to something gradually lower, so long as the economy keeps looking better.

It won’t happen all at once. The Fed is not convinced that the current economic upturn is truly sustainable. But Bernanke is implying that the Fed may become less easy in the second half of this year, perhaps ending QE in 2014. 

Read my full column here.

You might not know it from the acrimonious political debate on cable and broadcast TV, or on talk radio, or on websites and blogs. But here’s a counterintuitive observation: Amidst all the negativism out there, I believe optimism is in the air.

That’s right. Optimism.

Sometimes you have to search for it, or read it in the fine print. But I believe the political economy is getting better, not worse. 

Read my full column here.

House budget chairman Paul Ryan told me on Tuesday that his plan to balance the budget — in part by defunding Obamacare — is the right thing to do. By including that provision, it appears the proposal will be dead on arrival for the White House and Senate Democrats. But when I asked him if the plan was both good policy and bad politics, he responded, “Do you think we should give up our principles just because we’re submitting a budget? We believe this is a terrible law that will collapse under its own weight.”

Ryan further explained that a big part of his savings plan focuses on stopping the billions of dollars in Medicare now scheduled to be shifted out of the program and into the new health-care-reform system. But he also signaled that he may be willing to compromise on health care and many other parts of his plan.

“Do you start with your best offer when you start a negotiation? This is just the beginning,” Ryan said.

But getting to a balanced budget anytime will soon rely heavily on Republicans winning the battle on repealing large parts of the health-care law. That’s because the biggest savings in the Ryan plan come from cancelling the massive Obamacare expansion of Medicaid. Ryan says that part alone accounts for about $815 billion in savings out of the almost $5 trillion in cuts inside his proposal.

Entitlement reform is also a major focus of the Republican budget proposal. Ryan believes the same kinds of welfare reforms that succeeded in the late 1990s can be seen again, especially in the ever-expanding food-stamp program.

“We see food-stamp reform as part of welfare reform. We want to send it back to the states, and give them more flexibility,” Ryan said.

Ryan also talked about his plans for broad-based tax reform, explaining that lowering the rates and broadening the base is the best way to grow the economy and increase revenues. I agree.

Ryan did admit that he doesn’t expect to get all he wants in any negotiations with the White House. He conceded that he probably won’t be able to get the full $5 trillion in cuts he seeks, and that he would accept a “down payment” on that amount.

Finally, the congressman expressed cautious optimism about the chances of ever making a deal with Team Obama. He was positive, but realistic, about the administration’s new outreach toward Republicans.

“Trust but verify.” That’s how Paul Ryan characterizes the president’s charm offensive of recent days.