Watching Larry Kudlow recently on CNBC, we had the rather strange feeling that he was the spokesperson on some sort of infomercial for lower interest rates. One of his guests had just made a rather reasonable argument on interest rates, one that we have made in the past. Nominal economic growth was running somewhere around 8%, the guest said, and it was likely to stay at this level. The only question to be resolved was how much would be inflation and how much would be so-called “real growth”. In the current strong growth and high commodity price environment, the guest felt that inflation was likely to move higher. This would lead to higher interest rates as the Fed “normalized” monetary policy.
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Canso 2005 Q1 Market Observer
