As Trump's second term approaches, his policy proposals have sparked concerns about inflation rebounding in the coming years, but one economist believes these concerns are unfounded.
Last Sunday, Steve Hanke, known as the "money doctor," predicted that the anti-inflation process will continue next year, with inflation rates dropping below the Federal Reserve's 2% target.
This top economist said: "All the talk about Trump's policies leading to a resurgence of inflation is nonsense; it depends on the actions of the Federal Reserve and the state of monetary policy in terms of money supply."
Hanke pointed out that since 2022, the money supply in the United States has been decreasing, which is concerning. He said that in the past century, the total amount of money in the U.S. economy has only decreased four times. Each decline since 1913 has been accompanied by economic recession or depression, as well as stagnation in price growth.
Hanke said: "It is worth mentioning that the money supply has grown 2.6% year-on-year, which is lower than my proposed 'golden growth rate' of 6%, and a 6% growth rate is consistent with achieving the 2% inflation target, so inflation will continue to decline."
According to Federal Reserve data, the broad money supply (M2) began to expand again this year, after peaking in March 2022. However, its gradual recovery is still not enough to change Hanke's view, as he remains convinced that the U.S. will experience an economic recession in 2025.
Earlier this month, he said in an interview with NYSE TV Live: "To put it simply, the fuel of the economy is the money supply. If it undergoes significant changes, nominal GDP will also undergo significant changes."
Economists focused on Trump largely overlooked this point, instead warning that Trump's promised immigration restrictions, tax cuts, and protectionist trade policies would lead to rising prices.
But Hanke refuted these views and praised the incoming government for its emphasis on deregulation of the economy. In his view, reducing regulation will drive GDP growth without causing inflationary side effects.
He also cited comments from Treasury Secretary Basant, nominated by Trump, who proposed ways to mitigate the inflation effects caused by Trump's trade policies.
Basant defended Trump's tariff policy by saying that tariffs are "a useful tool for achieving the president's foreign policy goals." He also called for a "phased" implementation of tariffs.
Article reposted from: Jin Shi Data
