Economist Predicts the United States Will Enter an “Ugly Recession” in First Quarter of 2024

In an interview with Kitco, Steve Hanke, a Professor of Applied Economics at Johns Hopkins University, asserted that the Federal Reserve does not know what it’s doing and is blindly going into a recession in the first quarter of 2024.

Hanke previously served on Ronald Reagan’s Council of Economic Advisors, and is ideologically a monetarist when it comes to monetary policy. In other words, he claims that changes in the M2 money supply directly bring about changes in inflation and the gross domestic product (GDP). 

“The Fed doesn’t pay any attention to the money supply, because [it claims] the money supply is not a reliable indicator,” he said to Michelle Makori, Editor-in-Chief at Kitco News. “They’re ignoring the evidence… The models that they have are post-Keynesian macroeconomic models that don’t include money.”

Hanke’s comments came after the Federal Open Market Committee’s (FOMC) most recent meeting, which witnessed a rate pause. On a prior occasion, the Fed increased rates ten straight times from March 2022 to May 2023, increasing the Fed Funds Rate by 500 basis points over that time frame. 

Hanke believes that the money supply, and not tweaks in the interest rate, are what shape the “tenor and tone of monetary policy.”

“Since last April, the money supply has actually shrunk by 4.6 percent,” he noted. “Inflation is falling very rapidly because the money supply has been contracting very rapidly, and eventually we’re going to have the economy contracting very rapidly.”

“The banks are tightening up,” commented Hanke. “They’re shrinking the assets that they have so they can increase the capital-asset ratios to meet the demands of the regulators.”

Back in March, three banks – Signature, Silicon Valley Bank, and Silvergate  – closed during concerns about liquidity. In May, First Republic Bank collapsed, and JP Morgan bought its assets.

Hanke stated that a “credit crunch on Wall Street” would compel the Fed to pivot on rate increases and halt its quantitative tightening program.

“The only thing that could make them pivot is if they have some kind of credit or liquidity crash, or squeeze on Wall Street,” Hanke predicted.

Hanke is one of the best contrarian economists in the game. His insights are a breath of fresh air from the stale interventionist commentary that dominates economic discussions these days. 

If we want to move towards a free market economic order, we need many more Hankes out here challenging the economic status quo.

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