The Corner

Goldilocks Lives

Today’s upwardly revised GDP report shows that Goldilocks lives.

Strong business investment, solid consumer spending, unbelievably high profits, and much lower inflation.

In fact, inflation fell from 3.3 percent in Q2 to only 1.7 percent in Q3. Profits are up 31 percent over the past year. GDP was revised up from 1.6 percent in the advance report to 2.2 percent, which leaves year on year of 3.0 percent.

Obviously, the economy is slowing after 2 years of Fed tightening, along with higher oil prices. And just as obvious is that the housing slowdown is taking roughly 1 percent off of GDP.

But our free-market, capitalist, economy is resilient, durable and flexible—especially when bolstered by low marginal tax rates on investment—a point that the MSM never talks about.

So, the soft landing scenario is intact. That’s what the stock market has been telling us over the past four months. The Reagan economic policy of low tax rates to promote growth and monetary control to hold down inflation is very much in place right now.

Next year’s economy will move back towards trend growth of around 3 percent or more. Markets are smarter than econometricians. The bond market is predicting low inflation while the stock market is predicting continued economic growth.

Larry Kudlow — Larry Kudlow is CNBC’s senior contributor. His new book is JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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