Steve Hanke, Professor of Applied Economics at Johns Hopkins University, has warned that the United States economy is moving on the edge of a severe downturn, potentially sliding into recession in 2025.
Hanke pointed to a rare contraction in the money supply and plunging economic indicators as evidence that the nation is “going off the cliff,” urging policymakers and investors to prepare for turbulent times, he said during an interview with David Lin published on March 8.
At the core of Hanke’s prediction is a record decline in the money supply, which has dropped to levels not seen since June 2022.
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He argued that this monetary squeeze is now rippling through the economy with a lag, setting the stage for a significant slowdown.
“I have been anticipating that this going off the cliff would have happened before. <…> We have a stock of the money supply now that is less than in June 2022. So, the money supply is contracted. That kind of big contraction has only occurred four times in the history of the Fed since 1913. And each of those has been followed by either a depression or, in the other three cases, just a garden variety recession,” he said.
Adding to the concern is the Atlanta Fed’s GDPNow tracker, which has plummeted from a 2% growth forecast to 2.8% for the first quarter of 2025 in just two updates.
Hanke seized on this sharp decline as a warning sign, noting that real personal consumption expenditure growth fell from 1.3% to 0%, while real private fixed investment growth dropped from 3.5% to just 0.1%.
Inevitable recession
Doubling down on his recession call, the economist dismissed the notion that modern economies require an external shock—like a pandemic or war—to enter a downturn.
He argued that this contraction outweighs other factors, making a recession inevitable unless there is a dramatic shift in monetary policy.
“Since I have been anticipating this recession for some time, it didn’t occur. A slowdown will surely happen, and maybe a recession will occur,” Hanke added.
The warning comes as President Donald Trump moves forward with plans for reciprocal tariffs, set to take effect on April 2, 2025, to address trade imbalances with countries like China and India. In his recent State of the Union address, Trump vowed to balance the federal budget by cutting “fraud, waste, and theft.”
However, Hanke dismissed these measures as ineffective against deeper economic trends.
“Tariffs aren’t going to bring in very much money. It will certainly not change the trade balance because that depends on the magnitude of the fiscal deficit. If the fiscal deficit doesn’t change much, then the trade deficit will not change much,” Hanke said.
Generally, Hanke’s economic outlook aligns with warnings from a growing number of key market players anticipating a downturn. With recession odds skyrocketing, recent analysts predict a potential crash could emerge in 2025.
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