Weekend Question 3: Why Do I Wish Don Luskin Was Wrong about Inflation?

Answer: Because if he were wrong, the Fed wouldn’t have to raise interest rates a couple more times.

But he’s not wrong, and the fact that he’s not wrong (he’s, r, r, r, ….. right) is why the stock market had a bad week:

I’ve been saying in this column for two years that inflation was a rising threat, and that the Fed needed to speed up its rate-hiking campaign to address that threat. Now that threat is there for all to see, and markets are beginning to believe their eyes.

….. today’s inflation is the result of the Fed keeping rates way too low for way too long. The only way to fix it is to get to a normal level of interest rates — right away. The longer you wait, the worse it gets.

….. inflation is cheating the American people of the full benefit of the economic miracles of this decade.

So I’m hoping that the Fed will stop kidding itself and get tougher on inflation. The Fed needs to be honest that it’s not “contained” and do something about it.

Stocks have gotten killed over the last week as inflation fears have come into high awareness. That’s a mistake. The inflation has been with us all along. It’s the awareness that’s new, and awareness is always a good thing. If you know you have a disease, you can treat it.

At this point inflation can still be turned back easily and effectively by relatively mild rate hikes, which will have little risk of damaging our rapidly growing economy. And while I can’t be sure, I do expect that the Fed will indeed end up doing what has to be done before it is too late.

So while stocks aren’t the bargain they were six months ago, they’re more of a bargain than they were two weeks ago. If you think the Fed under Bernanke will get it right, then this week’s scary dip in equities is a buying opportunity.

So buck up, folks. Fed Chairman Bernanke should be raising rates at least a couple more times, something I sure didn’t think was needed some months ago. But I was wr, wr, wr….. wrong.

Ah, that wasn’t so bad. Besides, so was Larry Kudlow.