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According to Steve Hanke, a professor of applied economics at Johns Hopkins University, the U.S. economy will enter a recession next year, but not necessarily as a result of increasing interest rates.
He said on CNBC’s “Street Signs Asia” on Monday, “We will have a recession because we’ve had five months of negative M2 growth, money supply growth, and the Fed isn’t even looking at it.”
The broad M2 metric is used by market observers as a predictor of future inflation and the overall money supply. Cash, checking and savings deposits, and money market securities are all included in M2.
Hanke cautioned that the stagnant money supply of recent months is likely to cause an economic slowdown.
In 2023, he predicted, “we’re going to experience one whopper of a recession.”
Hanke predicted that due to the “record rise” in the US money supply, inflation will continue to be high.
He noted that the money supply in the United States had “extraordinary increase” when Covid started two years ago and noted that historically, “sustained inflation” has never occurred that isn’t the result of excess growth in the money supply.
That is the reason for the current inflation, and it is also the reason why, by the way, inflation will likely continue through 2023 and into 2024.
According to a CNBC article from 2020, rising money supply may cause significant inflation.
The inflation will occur because of the excess that is presently entering the system, he continued, and we will see stagflation.
Hanke stated, “The issue we have is that the [Fed Chair Jerome Powell] does not even now comprehend what the drivers of inflation are and were.
He continued to talk about supply-side problems, but he “has failed to inform us that inflation is usually generated by excess growth in the money supply, turning on the printing presses,” the man stated.
Powell stated that he believes the high inflation in the United States is “a result of strong demand and tight supply, and that the Fed’s instruments work primarily on aggregate demand” in his policy speech at the annual Jackson Hole economic symposium on Friday.
The Fed’s strategy has drawn some criticism from David Rosenberg, president of Rosenberg Research, but in different ways. He claimed that the Fed is now “more than happy” to tighten policy excessively in order to reduce inflation swiftly.
On Monday, he remarked on CNBC’s “Squawk Box Asia,” “Overtighten means that if the economy slips into a recession, you know — so be it,” adding that Powell had emphasised that this was short-term pain for long-term gain.
He said he is “a little upset” that the Fed is “not going to take any chances” after being “thoroughly embarrassed” for calling inflation transitory, but that the Fed is “not going to take any chances” since it is chasing lagging indicators like the unemployment rate and inflation.
The economy will essentially be a sacrificed lamb in the foreseeable future, according to Powell, according to Rosenberg.
He continued, “I think this Fed will need to see probably at least six months of significant disinflation in the pricing data before they call it quits. After being on the wrong side of the call for the past perhaps 12 to 15 months.”