Markets 
One of the most telling statements from President Trump at this week’s G-7 meeting was how worried he was about a potential economic catastrophe related to the Iran war and the closing of the Strait of Hormuz. And equally telling, the president referred to the stock market as a key barometer of the economy.
This is very similar to over a year ago when he modified his original liberation day tariff schedules because the stock market tanked badly after his speech. So he made adjustments.
And I can tell you with my own experience when I worked at the National Economic Council in the first term, however many 100 times I was in the oval, he always asked about the stock market when he saw me coming in.
It’s an interesting point of view. And it’s a kind of old-fashioned point of view. Because business and financial economists used to use the stock market as a key barometer of the economy.
Leftists hate this, and unfortunately, today’s Wall Street is heavily populated by leftists, particularly the economists. Not all of them. But most of them.
So anyway, the president didn’t want to be remembered as Herbert Hoover. And here’s exactly what he did say on Wednesday in France:
“So the one thing I didn’t want to see is I didn’t want to see economic catastrophe. If you kept this going, that could have happened. But all I know is, every time we talked about the possibility of peace, the stock market shot up like a rocket ship. It never went down. They didn’t like it.”
Mr. Trump added that “the stock market is more brilliant than anybody there is, including the people on this stage other than me, of course. Rather than possibly going into a depression, rather than having your favorite president be Herbert Hoover, who was always the one I didn’t want to be.”
I think that’s very important and very instructive on his thinking. I’m gonna get to the masterful, maiden voyage of the Fed chairman, Kevin Warsh, in just a moment, but I want to add from Mr. Trump’s Truth Social post this morning:
“OIL IS FLOWING, IRAN CAN NEVER HAVE A NUCLEAR WEAPON (THE WORLD WILL BE SAFE), THE STOCK MARKETS ARE ROARING, JOBS ARE AT RECORDS, AND PRICES ARE DROPPING (AFFORDABILITY). OUR COUNTRY IS STRONG, SAFE, AND RESPECTED LIKE NEVER BEFORE.”
Mr. Trump concluded: “YOU’RE WELCOME.”
So now, Mr. Warsh made clear in yesterday’s presser that strong economic growth and low inflation, meaning stable prices, and low unemployment can all exist together. He basically told us that models developed 50 years or more ago should not be used in today’s ultra-high-tech, faster-than-the-speed-of-light economy. An important policy statement. And an enormous breath of fresh air.
Meanwhile, reports are coming in that oil is already flowing through the Strait of Hormuz faster than anyone thinks possible.
At $75 and change a barrel, West Texas intermediate oil today is right where it was one year ago, $75. But a year ago, gasoline was $3.18 a gallon. That’s a good forecast for what may happen. Right now it’s $3.99 a gallon nationwide, according to AAA. By the way $3.18 is an awfully good number for the GOP midterm outlook.
Yet Mr. Warsh was very clear that he is leaning toward restoring what he calls price stability. The Fed under its former chairman, Jay Powell, hadn’t hit its 2 percent inflation target in five years. Mr. Warsh wants to correct this.
I think it’s doubtful that he’s gonna start raising the Fed’s target rate, though. Why? Because they’d be looking backward at the lagging story of spiking oil, a story that has obviously completely reversed. Don’t base policy on last year’s story, try to look ahead. This too is a key Warsh theme.
And by the way, he watches commodities, which in general are falling. Energy, gold, silver, corn, wheat, etc., all falling. And as I noted yesterday, under Mr. Warsh, good news can once again be good news.
His goal is to get markets to react to the actual data news, not what some flyover regional reserve bank president says. That’s why forward guidance is gradually going to go away.
You know what’s really good news? Mr. Trump has decimated Iran’s nuclear and military capabilities. They’re on their knees. And that has allowed him to try and pull together a deal that includes reopening Hormuz.
And that’s going to allow Mr. Warsh the latitude for even more good news, both on falling inflation and rising prosperity. Think of it.
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