Recession is Still Coming, Warns Reagan Economic Adviser

Newsweek

a day ago

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The U.S. is on the cusp of a major economic downturn, according to a leading economist who served on Ronald Reagan's Council of Economic Advisers, despite such fears having abated for many.
In a recent interview, Steve Hanke, currently a professor of applied economics at Johns Hopkins University, described the contraction in the U.S. money supply—the total amount circulating in the economy—as a "harbinger of things to come."
"I think things will continue to show weakness and slow down in the United States and probably end up tipping into a recession later this year," he added.
Why It Matters
The delayed imposition and inflationary impacts of tariffs, the easing of trade tensions with countries like China, as well as robust GDP growth in the second quarter, has prompted some economists to lower their forecasts of a recession in America's near future.
However, Hanke believes that dismissing this possibility is a mistake, and issues that have been simmering beneath the surface of the U.S. economy since the COVID pandemic remain unresolved and could soon trigger significant economic upheaval.
What To Know
Hanke has been warning of an impending recession since 2022, largely due to the stagnation of money supply in the U.S.. In an article for the Wall Street Journal that year, he attributed this to loose monetary policy by the Federal Reserve to cushion the pandemic's economic impacts.
"We will enter a recession either late this year or early next year," Hanke said in August 2024, adding that the total U.S. money supply was then lower than in July 2022, and that the economy was "running on fumes."
Stock trader Peter Tuchman "Einstein of Wall Street" works on the floor of the New York Stock Exchange (NYSE) at the opening bell in New York City, on August 11, 2025.
Stock trader Peter Tuchman "Einstein of Wall Street" works on the floor of the New York Stock Exchange (NYSE) at the opening bell in New York City, on August 11, 2025.
Timothy A. Clary/AFP
Overall money supply—which Hanke notes is tied to nominal GDP—has risen since its recent lows, according to Federal Reserve data. However, it is still in line with 2022 levels, and growth remains below Hanke's "Golden" rate of 6 percent.
Hanke acknowledged the inaccuracy of his previous forecasts, but said: "I think we eventually will be proven correct because there have only been four significant contractions in the money supply in the United States since the Fed was founded in 1913 and those were all followed by recessions."
In a separate interview, Hanke said that Federal Reserve Chair Jerome Powell and President Donald Trump, have been overly focused on interest rates as the make-or-break solution to inflation and wider economic issues.
"Monetary policy is not about interest rates, it's about changes in the money supply," he said. "So they're just looking at the wrong gauge."
Hanke added that "regime uncertainty," and the unclear outlook for U.S. businesses regarding changes to the trading environment under Trump, was "depressing things further," and causing businesses to hold off on hiring and investment plans.
What People Are Saying
Economist Steve Hanke in a June interview said: "This is a slow-moving train. Once you get these contractions in the money supply, we will have long and variable lags that ultimately affect economic activity, and that's what's happening. I think the train will arrive in the second half of the year, and things will continue to slow down."
What Happens Next?
Hanke has forecast an 80 to 90 percent chance of a recession in the near future.