There was a lot of news today on both monetary and fiscal policy from the Biden administration. Frankly, none of it is particularly good. The stock market dropped 500 points on announcements about Federal Reserve policy and some early leaks on Biden administration budget policy. 

Couple of key points: First, Chairman Powell is right to say the Fed is going to be raising interest rates much more than previously thought. The Fed’s monumental error in 2021 of inflation denial — that was the big problem — is coming back to haunt it two years later as its quest to disinflate back to the 2 percent target is a lot harder than the Fed and, quite frankly, Wall Street, thought.  

I’ve said before my own hunch that the target rate is going to 6 percent from the current 4.75 percent. That’s just my hunch. But here’s the rub: Mr. Powell’s justification is all wrong. An unhealthy patient diagnosed incorrectly by his physician will never heal. 

“The latest economic data have come in stronger than expected,” Mr. Powell said, “which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.” 

Mr. Powell arguing for more hawkish rate hikes because the latest economic data is stronger is totally wrong. What he should be saying is that higher rates that reduce excess money are necessary because the latest price data are stronger than expected. 

What the central bank should want to do is bring down inflation, not growth or the whole economy, or middle class families, or blue-collar jobs. If he’d used the price justification, he’d be on target. 

The Cleveland Fed’s median CPI — chopping off the high and low price outliers — is running 7.1 percent year on year. The actual CPI is up 6.4 percent. The Atlanta Fed wage tracker is over 6 percent. 

Using those price measures, a 4.75 percent Fed funds rate is below the inflation rate and is therefore a negative real target rate. In that sense, the Fed is not tight. It’s actually still loose. 

I know other measures have steadied down, like broad-based commodity indexes, which is a good thing, but if the totality of inflation indexes is three times the 2 percent target, that’s a bad thing. 

The goal of monetary policy should be price stability, not a high unemployment rate or a recession. The other goal should be to maintain steady living standards with a steady value of the money in your wallets and pocketbooks. Mr. Powell should explain this, but he doesn’t. 

Then the other problem is budget policy. We are learning that the Biden budget, when it comes out, is going to be chock full of tax hikes on successful earners, on investments, and on small businesses. This is the backbone of the job-creating economy. 

Apparently, Mr. Biden wants to slap a 5 percent tax rate on income above $400,000 on capital gains and on small businesses. Small businesses, by the way, are responsible for 60-70 percent of the jobs in this country, and probably roughly the same amount of economic activity. 

It sounds like Messrs. Powell and Biden are both getting ready to slaughter the small-business sector. This is not good. 

Mr. Biden says he’s doing it to save Medicare, but a slumping economy from higher tax rates will make the Medicare and Social Security budgets even worse as the economy declines. Makes no sense at all. 

This comes on top of tax hikes already legislated, including a minimum tax on corporations, an end to the immediate bonus depreciation on the R&D tax credit, a reduction to 80 percent from 100 percent expensing on new business equipment, and continued efforts by Secretary Yellen to put together some kind of crazy tax on American companies operating overseas. 

Every single one of these is a prosperity killer. Every single one of these is a job killer. Every single one of these tax hikes is inflationary, because, even if the Fed reduces the supply of money, these dumb tax hikes will reduce the supply of goods even more, creating higher prices. 

Remember Art Laffer: “Producing more apples is counter inflationary, producing fewer apples raises their price.” Messrs. Biden and Powell, are you listening? 

From Mr. Kudlow’s broadcast on Fox Business News.