Math All But Guarantees A Recession By 2025 | Steve Hanke

"Winter Is Coming"

When today's expert was last on this program back in March, he predicted we'll see sub-2% inflation AND a recession by the end of this year.

Since then, headline CPI has remained stubbornly "sticky" above 3%, and just yesterday, Q2 GDP growth surprised to the upside.

So, is 2% (or less) inflation & a recession by December still his forecast?

Or have conditions changed?

To find out, we have the good fortune to sit down and get a full update today from Steve Hanke, professor of applied economics at the Johns Hopkins University in Baltimore, Maryland.

For all the details of Steve’s latest forecast, click here or on the image below:

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Adam’s Notes: Steve Hanke (recorded 7.23.24)

EXECUTIVE SUMMARY

• Initially, Steve Hanke and John Greenwood predicted that inflation would fall below 2% by the end of this year. However, due to a plateau in inflation earlier in the year, they have revised their forecast. They now expect inflation to be between 2.5% and 3% by the end of the year, with a further decline to 2% anticipated by the first quarter of next year. It may even dip slightly below 2% as 2025 progresses.

• Steve and John conducted a comprehensive study of 27 countries, accounting for 75% of global GDP. Their research revealed a consistent lag of about 23 months between peak money supply growth and peak inflation. They observed that countries with stable money supply growth, like China, Japan, and Switzerland, experienced mild inflation fluctuations. In contrast, countries such as the U.S., UK, and several emerging markets saw significant inflation fluctuations due to rapid money supply growth.

• In the United States, the money supply peaked in April 2021 at a rate four times higher than pre-COVID levels. This rapid increase led to a peak in inflation 19 months later, with the rate reaching 9.1%, which was also four times higher than pre-COVID levels. Steve’s latest projection of 2% inflation (or slightly less) in 2025 is based off of this same money supply-based math.

• Steve emphasizes Milton Friedman's theory that inflation is always a result of changes in the money supply. He argues that common explanations for inflation, such as supply chain disruptions, oil prices, and COVID-19 lockdowns, are merely symptoms and not the root causes. This theory is supported by the consistent 23-month lag observed between money supply changes and inflation across various countries.

• He criticizes the Federal Reserve for using post-Keynesian macroeconomic models that exclude money supply as a factor. He believes this leads to ineffective monetary policies and cyclical inflation-deflation patterns. Historical data shows that previous monetary contractions in 1948-49, 1937-38, and 1929-33 all resulted in recessions, suggesting a similar outcome may be likely now.

• Steve recommends investing in