Steve Hanke, a professor of applied economics at Johns Hopkins University and a Nobel laureate in economics, said on Monday (29th) that the U.S. economy will fall into recession next year, not necessarily because of the consequences of higher interest rates.
“We’re going to be in a recession because we’ve had five months of zero M2 growth, money supply growth, and the Fed isn’t even seeing that,” he said.
Market watchers use the broad M2, which includes cash, checking, savings deposits and money market securities, as a measure of the total money supply and future inflation.
Hanke warned that in recent months, the money supply has stagnated, which could lead to a slowdown and a recession in 2023.
He pointed out that Fed Chairman Powell has no idea that inflation has remained high over the past two years due to unprecedented growth in the U.S. money supply.
“He’s still talking about the supply side,” Hanke said. “He doesn’t tell us that inflation is always caused by an excessive increase in the money supply — turning on the money printing press.”
In a policy speech at the Jackson Hole Economic Symposium on Friday, Powell said he sees high U.S. inflation as “a product of strong demand and constrained supply, and the Fed’s tools work primarily on aggregate demand.”
Hanke expects that inflation will likely continue throughout 2023 and possibly even into 2024.
Hanke said his inflation model suggested prices would rise between 6% and 8% by the end of 2022. By the end of 2023, inflation will reach 5%.