Trump tax cuts will end Bidenflation.

Nobody really knows what drives stocks up — or down — in the short run.

That’s why I have long been a believer in a buy and hold index fund strategy — i.e. passive investing.

Many disagree — and I respect that — but that is still my view.

All that said, it is noteworthy that the Dow Jones index has dropped nine straight days — for the first time since 1978.

Over half of the Dow decline is the function of a 20 percent drop in UnitedHealth Group, following the heinous murder of their insurance chief executive, Brian Thompson.

Aside from the United Health tragedy, though, roughly two-thirds of the Dow components have fallen during this nine-day selloff — including Nvidia, which has dropped 11 percent.

Nobody should push the panic button on the stock market.

The S&P 500 has been roughly flat during this Dow selloff period.

The Dow drop, though, does give me an opportunity to raise a couple of economic policy issues — that may or may not have anything to do with the selloff.

Nonetheless, I think the Federal Reserve will be making another mistake — when they drop their target interest rate tomorrow, as is widely expected.

And I also worry that the Trump administration and the Republican Congress will delay its tax cut plans.  

Again, this may or may not have a thing to do with the Dow correction.

Regarding the Fed, though, an interesting Breitbart News story speculates that some on President-elect Trump’s economic team are warning that inflation risks may be underestimated, Jay Powell should be careful with these rate cuts, and Bidenflation is not dead.

Essentially, the data show that in the last six months or so various inflation measures have not only stopped falling, but have actually ticked up. 

The Commodity Research Bureau’s index shows commodity prices are up 16 percent over the past year.

Gold and silver prices are up nearly 30 percent over the past year.

Money supply measures are re-accelarating over the past three months. Asset prices, especially stocks, have been booming at least until recently.

There’s a lot of liquidity floating around right now.

Profits are the mother’s milk of stocks, at least in my way of thinking — and they have been solid.

The original Trump post-election rally, though, was based on the hope that tax cuts and de-regulation would boost business profits even more.

That’s not to say the Trump plan won’t be implemented, but there could be a creeping concern that it may come way later in the year — and that could cloud the outlook for the economy and the stock market next year, or even going into 2026.

These are concerns.

You can be sure that Trump and his team don’t want the Fed to deliver a higher inflation rate next year.

And you can be equally sure that the new administration doesn’t want a stagnant economy.

So I have a supply-side cure: harking back to the late Robert Mundell, who won a Nobel Prize in economics, and was a dear friend and mentor.

The supply-side cure for inflation is to lower marginal tax rates and minimize economic regulations on business, thereby creating new incentives for work effort investment and growth.

In other words produce more goods, and that by itself would lower inflation.

Second, Mundell would argue to strengthen the real value of the dollar by printing fewer dollars.

In today’s terms that means the Fed should cut its balance sheet to $5 trillion from $7 trillion.

The Mundell combination would generate more goods chasing less money.

That is a cure to ensure faster Trumpian growth and ending Bidenflation once and for all.

Think of it.

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