American economist Steve Hanke has doubled down on his recession warning, asserting that the downturn is already on an irreversible path.
Hanke projected that the recession would likely hit in the year’s second half, attributing this looming contraction to a shrinking money supply and growing policy uncertainty, he said in an interview with David Lin published on June 21.
Hanke, a Professor of Applied Economics at Johns Hopkins University, emphasized that sustained declines in the money supply, a historically reliable predictor of economic weakness, are a major red flag.
Although the effects of monetary contraction unfold with “long and variable lags,” he explained, the outcome is usually the same: reduced economic activity.
“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,” he said.
As reported by Finbold earlier, Hanke had noted that many economists have failed to account for money supply trends when forecasting a potential economic downturn.
Moreover, the scholar pointed to soft data indicators flashing warning signs. One notable example is recent college graduates’ increasing difficulty securing employment.
He explained that employers view new hires as investments in human capital and are increasingly hesitant to onboard unseasoned workers amid rising economic and political instability.
Impact of regime uncertainty
Hanke argued that a key factor behind this hesitation is the rise in “regime uncertainty” under Donald Trump’s presidency.
In this case, businesses, wary of unpredictable changes in tariffs and regulations, are delaying long-term investments as they wait for clearer policy direction. This uncertainty, he said, is leaving both employers and investors on the sidelines.
As previously reported by Finbold, Hanke had already placed the odds of a 2025 recession at 90%, with trade-related uncertainty playing a central role.
He also drew historical parallels to the 1930s New Deal era, when inconsistent policy shifts prolonged economic stagnation. Hanke warned that the economy may be headed down a similar path unless today’s uncertainty is resolved.
Besides the economist’s warning, the economy has been plunged into fresh uncertainty from the escalating geopolitical tensions in the Middle East, especially with the U.S. joining the war between Israel and Iran.
Featured image via Shutterstock
