Larry Kudlow: Chinese spying and espionage has infiltrated our nation's central bank

Kudlow reveals China has tried to get the Fed's economic models

So, Jay Powell's Fed went ahead and raised their target rate 75 basis points to 2.5%, as the world expected. No big surprise. 

The stock market increased over 500 points. Bonds are basically flat with the 10-year at 2.79 and gold is up $18. 

I kinda think if he had a little more hair on his chest, he would've done 100. My theory is simply that the faster the Fed gets its target rate above inflation and drains excess cash from the economy and achieves price stability, then the faster the economy can start growing again. 

Remember, the Fed's recent tightening moves have not yet significantly impacted the economy. That's still ahead of us. The economic slump in the first half of the year is principally a function of sky-rocketing inflation, which has undermined real wages and real retail sales and completely damaged consumer and small business confidence. 


Federal Reserve Jerome Powell

Federal Reserve Chairman Jerome Powell speaks to the Senate Banking, Housing and Urban Affairs Committee, as he presents the Monetary Policy Report to the committee on Capitol Hill, Wednesday, June 22, 2022, in Washington. (AP Photo/Manuel Balce Ceneta / AP Newsroom)

The conference board's consumer confidence survey is dropping like a stone. The July reading was 95.7%, a year ago it was 125.1%. That's a decline of 23%, and consumer inflation expectations for the next year is 7.6%, which I find to be just about right. 

Market signals are suggesting a peak of inflation, but it's going to be sticky on the way down and it's going to take over a year or more—perhaps two years if the Fed is ever going to get back to its 2% target. So, this is not going to be easy and if you want any semblance of growth in the economy, you've gotta extend the Trump tax cuts and slash Biden's modern socialism, regulatory scourge. 

Like his jihad against fossil fuels and for that matter the rest of business and his opposition to profits and his insistence that the focal point of his radical progressive economic policy is income redistribution and radical climate activism. Those policies have to go away. They are obstructing economic growth. Low taxes and tight money are the right recipe. The Bidens don't get it. 

Now, there is a breaking news story about the Fed. Chinese spying and espionage has infiltrated our nation's central bank. Jay Powell denies it, but the Senate Committee on Homeland Security and the FBI and Britain's MI5 are hot on the trail, issuing a rare joint warning to all businesses over Chinese espionage and cyber hacking and over at the Fed, research assistants throughout the Federal Reserve system have had illegal contacts with the Chinese ruling communist party. 

They are now being busted. China has tried to get a hold of Federal Reserve economic models and key data points and China has launched efforts for talent recruitment programs as well as information sharing. 

This goes all the way back to a Fed investigation in 2015, where they identified 13 people of interest, dubbed the "P" network in 8 of the 12 regional Fed banks. Then, a former employee of the Fed, identified as "Z," attempted to recruit network members. 

This stuff is out of a John LeCarre novel. Think "Tinker, Tailor, Soldier, Spy." Rob Portman is the lead senator on the investigation. He can play George Smiley in the new movie replacing Gary Oldman. Why Jay Powell is denying all this is beyond me, but if he continues, we're not going to give him a part in the movie. 

Adding to the plot, a Fed economist traveling to Shanghai a couple of years ago had Chinese thugs breaking into his hotel room, telling him he has to share sensitive information and advise the Chinese communist government. They even monitored his telephone calls surrounding a prior divorce. Those guys play tough! Very cruel.  


Fed Chairman Jerome Powell

Federal Reserve Board Chairman Jerome Powell speaks during a news conference in Washington, DC, on July 27, 2022. (Photo by MANDEL NGAN/AFP via Getty Images) ((Photo by MANDEL NGAN/AFP via Getty Images) / Getty Images)

Frankly, I don't know why the Chinese want the Fed's forecast, because they're never any good. Maybe Jay Powell is handling double agents to spread bad information, but, in any case, this is a nasty story. This is about national security and it is about Chinese communist evil doing. 

This is one of many reasons why Joe Biden should absolutely refuse to make any concessions to China on tariffs, or selling strategic petroleum oil reserves, or anything else, but President Biden will not be in the new movie.

This article is adapted from Larry Kudlow's opening commentary on the July 27, 2022, edition of "Kudlow."