Steve Hanke: 80% To 90% Chance Of Recession

On Wealthion, economist Steve Hanke said last week that a U.S. recession is almost inevitable, and warns that the Fed, Wall Street, and Donald Trump are all looking in the wrong direction. In a wide-ranging interview with James Connor, he explained why ignoring money supply is a fatal flaw in today’s policy and why the economy may be headed for a major contraction.

Hanke offered a bracing assessment of the U.S. and global economic landscape—warning of looming recession, misguided monetary policy, and dangerous geopolitical overreach. Hanke didn’t hold back as he tore into central bankers, politicians, and conventional economic wisdom.

I liked this interview because Hanke makes you think — he doesn’t do soundbites, safe takes, or Fed worship. He drops uncomfortable truths about money, war, and leadership that you’ll never hear on CNBC or CNN. From torching Powell’s cluelessness to calling out the U.S. for funding proxy wars, he says the quiet parts out loud.

The Fed’s Failures and the Recession Ahead

“Neither the president nor Powell know what they’re talking about. Monetary policy is not about interest rates. It’s about changes in the money supply,” he declared. That core belief shaped the entire conversation. He emphasized that changes in money supply—not interest rates—drive inflation and economic activity, and faulted Fed Chair Jerome Powell for outright rejecting the quantity theory of money. “Powell’s totally off the reservation,” Hanke said. “He’s testified over and over again that changes in the money supply don’t affect economic activity in any reliable way. This is nonsense.”

According to Hanke, modern macroeconomic models—particularly the post-Keynesian types—have wrongly excluded money supply as a critical input. “All the new macro models for the last 30 years have excluded money. It’s common sense: if you increase the money supply, you’re going to increase economic activity—and inflation.”

Hanke is not optimistic about the U.S. economic outlook. “We’ll probably go into a recession. I’ve said the probabilities are between 80 and 90 percent,” he warned. The culprit? Weak money supply growth and regime uncertainty. “Since April 2022, the stock of money is about exactly where it was—static. That’s a huge red flag,” he said. “The economy will keep slowing down.”

Hanke blasted the Federal Reserve’s “data-dependent” strategy, arguing it ensures they’ll always be behind the curve. “They look at current data, but current data moves because of what happened to the money supply one or two years ago.” To get ahead of the curve, Hanke says, you must monitor money supply trends. “The only way to get ahead is to look at changes in the money supply. But if you’re not looking at the money supply, by definition, you’re behind the curve.”

Geopolitical Chaos and Fiscal Mismanagement

On politics and geopolitics, Hanke was equally blunt. “We’ve got first-rate countries being run by third-rate people,” he said. Comparing today’s policy chaos to the Roosevelt-era New Deal, Hanke warned of “regime uncertainty”—a term used to describe unpredictable political decision-making that deters investment and hiring. This uncertainty is especially damaging for young workers: “College graduates in the U.S. are having trouble finding jobs. Not my students—they’re all on Wall Street—but for most grads, it’s bleak.”

The conversation turned to China, where luxury sales are faltering and economic momentum has slowed. “They’re literally in deflation, not just disinflation. The consumer price index is negative,” Hanke said. He noted that the Chinese central bank governor has been vocal about “the weaponization of the dollar,” urging a shift toward the yuan. But Hanke called that a weak challenge: “They’re in big trouble in China. The governor should stick to his knitting in Beijing instead of badmouthing the dollar.”

Asked about the dollar, Hanke noted the DXY Index has weakened but expects the euro-dollar exchange rate to revert to fair value. “The fair value is between 1.20 and 1.40. We’re at about 1.15 now. I think it’ll move up into that range.”

Hanke agreed with Elon Musk’s scathing criticism of Congress’s recent spending legislation, calling it a “big, bad bill.” He lambasted the defense spending increases: “The Department of Defense is a black hole—it’s never been audited. It’s the only federal agency that can’t be audited.” Instead of reining in defense spending, “we’re pouring more money into the military-industrial complex.”

Markets in Denial and the Case for Gold

Despite widespread economic weakness, the S&P 500 remains near all-time highs—something Hanke finds mystifying. “For the life of me, I don’t know. My bubble detector says this market is in a bubble. We haven’t seen this since 2001.” He said bubbles end in one of two ways: “They either pop or deflate slowly. And it’s hard to predict which, or when.”

Initially bullish on long bonds, Hanke has changed his tune: “I’m more in the Jamie Dimon camp now. There are cracks forming in the bond market.” He pointed to rising real yields and the flood of new Treasury supply as key pressure points. “The bull market in bonds ended in 2022. It’s over.”

On gold, Hanke remains confident: “Yes, I’m still holding gold. You never have enough. It’s going up. That’s what matters.” He also promoted his proprietary Hanke-Kofnas Gold Sentiment Score as a tool for gauging market psychology.

In his closing thoughts, Hanke didn’t sugarcoat the state of leadership. “Let’s face it: we’ve got a lot of third-raters running the show.”

“If you want to stop a war—stop funding it.” And with recession risks rising, market euphoria intensifying, and policymakers misreading their own instruments, Hanke’s warnings feel more relevant than ever.

QTR’s Disclaimer: Please read my full legal disclaimer on my About page here. This post represents my opinions only. In addition, please understand I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. Contributor posts and aggregated posts have been hand selected by me, have not been fact checked and are the opinions of their authors. They are either submitted to QTR by their author, reprinted under a Creative Commons license with my best effort to uphold what the license asks, or with the permission of the author.

This is not a recommendation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. None of this is a solicitation to buy or sell securities. I may or may not own names I write about and are watching. Sometimes I’m bullish without owning things, sometimes I’m bearish and do own things. Just assume my positions could be exactly the opposite of what you think they are just in case. If I’m long I could quickly be short and vice versa. I won’t update my positions. All positions can change immediately as soon as I publish this, with or without notice and at any point I can be long, short or neutral on any position. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. I edit after my posts are published because I’m impatient and lazy, so if you see a typo, check back in a half hour. Also, I just straight up get shit wrong a lot. I mention it twice because it’s that important.