Inflation and Economic Trends

NBCi presents

July 02, 1999

Economist Lawrence Kudlow, from American Skandia, answers questions about inflation and economic trends.

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CNBC: Welcome to CNBC.com's MoneyTalk Live! Our guest today is CNBC.com Chief economist Lawrence Kudlow from American Skandia. He's here to take your questions on the markets and the latest trends in the economy. And now here's Lawrence Kudlow.

Lawrence Kudlow: Hello, good morning everyone! Just a few thoughts to open. First of all, I think our inflation-less prosperity will continue. Our rapid technological advance will continue, also. The information technology sector is contributing to over 50 percent of business investment. I think Alan Greenspan understands the new paradigm economy and while he is somewhat misunderstood, I don't think he is trying to severely limit economic growth. I think he is still keeping a sharp eye on market commodity prices, including gold and the dollar rate, so I remain an optimist, and I don't think the Fed is going to be an obstacle. Mr. Clinton will not get his entitlement increases and we may get some modest tax cuts on Roth IRAs and on captial gains rate. I think the best way to make money is still to stay invested in U.S. Stocks.

Whip: Why is low unemployment deemed bad?

Lawrence Kudlow: I don't think low unemployment IS bad. I think it's great more and more people are working and prospering. And I think that the Philips curve model should be thrown into the dustbin of history, and the People's Republic of Cambridge MA should give back its Nobel Prizes. Whenever growth is strong and the dollar is strong, then inflation is low. So it's not a problem in my view, it's a solution.

Mr: What do you use as an indicator of inflation?

Lawrence Kudlow: Primarily, the price of gold and the exchange rate of the dollar. Strong dollar, low gold spells price stability. Weak dollar, high gold spells inflation trouble.

Curve Is Dead: Do you think the FED will realize that the Phillips curve is invalid?

Lawrence Kudlow: I think Greenspan is leading the Fed away from the Phillips Curve. These things take time, but he's moving them away from that limit-to-growth model. That may be his great legacy.

Meriwidow: Is raising the interest rate such a bad thing? Out here in CA where we pay 1 mil over the asking price of a 3 bedroom house.It seems to me the economy and reaction to it is way out of control. I looked to this as GOOD News!

Lawrence Kudlow: I felt the Fed should have stayed on neutral. I didn't see the evidence of a real inflation threat. I appreciate the California home price rally. It's a lot better than the depression in California real estate in the early and mid 90s. I used to be a homeowner in Rancho Santa Fe, outside San Diego.

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