Larry Kudlow, renowned economist and Newsmax Finance Insider, said Federal Reserve Chair Janet Yellen is right to be cautious about raising interest rates too aggressively this year.
Yellen in
a speech this week at the New York Economics Club said the global economy is showing signs of weakening, and waning demand for goods and services is damping the
outlook for inflation.
“Sounds like we're not going to have another Fed rate hike for quite some time, maybe once before the end of the year,”
Kudlow said on CNBC. “The hint was no need for the Fed to take any actions any time soon.”
The Fed
raised interest rates in December for the first time since 2006, when the housing bubble was helping to fuel economic expansion. As that speculative excess collapsed, triggering bank failures and a global recession, the central bank cut rates to a record low of nearly zero percent in 2008 in an effort to juice the economy.
Following the December rate hike of 0.25 percentage points, stocks sold off by more than 10 percent from May’s record high. China’s weakening economy and the continued collapse in oil prices to a 13-year low of about $26 a barrel also pressured stocks, which gradually bounced back this month.
Yellen’s speech on Tuesday spurred a 1.5 percent rally in the S&P 500 stock index as investors anticipated that easy credit provided by the Fed will support growth.
Tax Reform Needed
Kudlow said the federal government needs to take steps to boost the economy, especially by changing the tax code to provide greater incentives for companies to invest in the U.S. and to hire American workers instead of chasing cheap labor in emerging markets like China and Mexico.
“Let us get a substantial corporate tax cut,” Kudlow said. “How about a 15 percent corporate tax rate down from 40 percent? How about full cash expensing? How about letting the smaller businesses that pass through the S Corp.'s get the same lower rate as the large businesses, the so-called C Corp.'s, and let's stop double-taxing overseas profits.”
Kudlow says these reforms would get the U.S. economy to grow more than the paltry 1.6 percent inflation-adjusted annual rate of the Obama years. Obama is on track to be the first U.S. president without a year of
real GDP growth of more than 3 percent.
“That would drive this economy fast and you'd move from 2 percent growth to 4 percent or a better growth,” Kudlow said. “You'd have much better wages. That's the middle-class wage earned that benefits the most from the corporate tax cut and we'll all feel a lot better about how the world works.”
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