"Currency Doctor" criticizes the Federal Reserve: Monetary policy performance is unsatisfactory!

Renowned economist, known as the "Currency Doctor", Steve Hanke believes that the United States has not avoided an economic recession, and the economy is slowing down too quickly to achieve a soft landing, pointing out that the Federal Reserve has "failed".

The Johns Hopkins University professor has identified signs of slowing economic activity in the United States, with inflation cooling down from a peak of around 9% in 2022. Hanke predicts that following this trend, the Consumer Price Index (CPI) is destined to drop below 3% by the end of this year, and with economic contraction, it will eventually fall below 2%.

In a recent interview, he added, "I believe the economy is slowing down, and may drag us into a recession by the end of this year or early next year."

Hanke has been warning of this potential economic downturn for months, making him one of the few remaining bears on Wall Street. Most forecasters say the United States appears poised to avoid an economic recession. However, Hanke points out that the money supply is decreasing, indicating a simultaneous slowdown in economic activity.

According to Federal Reserve data, over the past two years, the broad money supply in the United States (M2) has mostly been contracting, and as of early June this year, the M2 money supply only grew by 0.5% year-on-year. In contrast, at the beginning of 2021, due to the pandemic stimulating economic activity, the M2 money supply grew by 27%.

The growth rate of the money supply is also far below Hanke's estimated 6%, which aligns with the 2% inflation. Hanke says, "This indicates that if the Federal Reserve intends to keep inflation at an appropriate level, it will need to significantly loosen monetary policy."

Regarding inflation falling below the Federal Reserve's 2% target, Hanke said, "Interest rates will fluctuate with the inflation rate, so interest rates will drop significantly."

Federal Reserve officials have rapidly raised interest rates in 2022 and 2023 to curb soaring inflation. Now, interest rates are hovering at their highest levels since 2001, with other experts warning that this level could push the economy into contraction.

Hanke said that Federal Reserve officials' monetary policy over the past few years should be rated as "F", meaning failing, as officials have been slow to address the surge in money supply and the subsequent spike in inflation.

Hanke stated, "This is one of the worst performances by the Federal Reserve. The average person on the street knows that if you stimulate the money supply, you will get inflation. And if you tighten monetary policy, it will lead to a recession. Since 1930, the Federal Reserve has tightened monetary policy four times, each time resulting in economic contraction and ultimately leading to an economic recession."

Federal Reserve officials seem prepared to lower interest rates later this year, but the outlook for an economic recession remains uncertain. According to the latest estimates from economists at the New York Fed, there is a 56% probability that the United States will enter a recession by June 2025