According to Steve Hanke, a professor of applied economics at Johns Hopkins University, the US economy will fall into a recession next year, and that’s not necessarily due to higher interest rates.
“We’re going to have a recession because we’ve had five months without M2 money growth, money supply growth, and the Fed isn’t even looking at that,” he told CNBC.Asian street signs“in Monday.
Market watchers use Ruler M2 as an indicator of the aggregate money supply and future inflation. M2 includes cash, checks and savings deposits and money market securities.
In recent months, the money supply has stagnated and that could potentially lead to a recession, Hanke warned.
“We’re going to have a terrible recession in 2023,” he said.
Meanwhile, inflation will continue to be high due to “unprecedented” money supply growth in the United States, Hanke said.
Historically, there has never been “sustainable inflation” that was not the result of growth outpacing the money supply, and indicates that the money supply in the US has seen “unprecedented growth” when Covid started two years ago, he said.
“That’s why we’re having inflation, and that’s why, we’re going to continue to have inflation through 2023 and possibly into 2024,” he added.
In 2020, CNBC reported that An increase in the money supply can lead to high inflation.
“The bottom line is we’re going to have stagnant inflation – we’re going to have inflation because this excess is now seeping into the system,” he added.
“The problem we have is [Fed Chair Jerome Powell] Hanke said, did not understand, even at this point, what the cause of inflation was and was.
“He was still going on about the supply-side glitches,” he said, adding that “he didn’t tell us that inflation was always caused by an overgrowth of the money supply that kept the printing plants running. move”.
Powell, in his policy speech at the annual Jackson Hole economic symposium on Friday, said his view high inflation in the US as a “product of strong demand and limited supply, and that the Fed’s tools operate primarily on aggregate demand. “
CNBC has reached out to the Federal Reserve for comment.
‘Sacrificial lamb’
David Rosenberg, president of Rosenberg Research, also expressed skepticism about the Fed’s direction, but in a different light. He said the Fed is now “very happy” to tighten excessively to bring inflation down quickly.
“Too tight means if the economy goes into a recession, you know – just like that,” he told CNBC.Squawk Box Asia“on Monday, adding that Powell said this is short-term pain for long-term profits.
He said he was “a bit disappointed” that the central bank was chasing lagging indicators like unemployment and inflation, but that the Fed “wouldn’t take any chances” after it was “absolutely bad”. tiger” when calling inflation temporary.
“[Powell] Essentially, the economy in the near term will be a sacrificial lamb, Rosenberg says.
“I think this Fed, after going the wrong way in its call for the last 12 to 15 months, will need to see perhaps at least six months of intense deflation in the price data before they call it ‘more.
