Tuesday, November 28, 2023

Renowned economist Steve Hanke, a professor at Johns Hopkins University and former member of Ronald Reagan’s Council of Economic Advisors, recently voiced his concerns about the lack of direction from the U.S. Federal Reserve and warned of an impending recession that he described as “ugly.” Hanke’s remarks came during an interview with Michelle Makori, lead anchor at Kitco News, where he discussed the future of the U.S. economy and criticized the Federal Reserve’s decision to pause the federal funds rate at the recent Federal Open Market Committee (FOMC) meeting.

Hanke stressed the importance of closely examining the monetary supply rather than solely focusing on interest rates, noting that Federal Reserve chairman Jerome Powell acknowledged the continuation of quantitative tightening despite the pause in rate hikes. He pointed out that the money supply has been contracting since April, shrinking by 4.6%. Hanke highlighted that such a significant contraction hasn’t been seen since the late 1930s, emphasizing that changes in the money supply have a ripple effect on the economy and impact asset prices within six months.

Looking ahead, Hanke predicted that these changes would result in broad-based inflation over the next 12 to 24 months, stating that the economy would experience a rapid decline due to the contraction in the money supply. Despite the evidence supporting the role of money supply as an indicator, Hanke criticized the Federal Reserve for disregarding it and relying on post-Keynesian macroeconomic models that exclude money.

Hanke expressed his belief that a recession is inevitable given the money supply contractions and criticized the Federal Reserve for doubling down on its current approach, while Chairman Powell has publicly stated that the money supply is not a significant factor. He mentioned that banks are now tightening and reducing assets to comply with regulatory demands, but speculated that the Fed might change its strategy if there were a credit crunch or liquidity crisis on Wall Street.

Hanke, a long-time critic of the Federal Reserve, also discussed the positive outlook for gold, citing its historical performance during recessions and the increased gold purchases by central banks. He concluded the interview by sharing his thoughts on how inflation should be managed in Argentina.

What are your own opinions on Steve Hanke’s warning of an “ugly” recession and his critique of the Federal Reserve’s approach? Feel free to share your insights and thoughts in the comments section below.

Frequently Asked Questions (FAQs) about recession warning

What is Steve Hanke warning about?

Steve Hanke is warning about a looming “ugly” recession and expressing concerns about the direction of the U.S. Federal Reserve’s policies.

What does Steve Hanke criticize the Federal Reserve for?

Steve Hanke criticizes the Federal Reserve for lacking direction and not knowing what it is doing. He also criticizes their disregard for the importance of the money supply as an indicator.

What does Steve Hanke say about the money supply contraction?

Steve Hanke highlights that the money supply has been contracting since April and has shrunk by 4.6%. He believes that these contractions will lead to changes in asset prices and eventually result in a rapid economic decline.

How does Steve Hanke view the Federal Reserve’s approach to the money supply?

Steve Hanke believes that the Federal Reserve is ignoring the evidence and relying on post-Keynesian macroeconomic models that exclude money. He argues that a recession is inevitable given the money supply contractions.

What does Steve Hanke say about gold?

Steve Hanke expresses a positive outlook on gold, citing its past performance during recessions. He also mentions that central banks have been purchasing significant amounts of gold recently.

What is Steve Hanke’s opinion on handling inflation in Argentina?

Steve Hanke discusses his thoughts on how inflation should be managed in Argentina, but the specific details are not mentioned in the text.

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