Economist Steve Hanke Calls Inflation Fears 'Nonsense' As Fed Policies Take the Wheel in 2025

Inflation? Not on Steve Hanke's watch. The veteran economist says fears of inflation spiking under Trump's second term are way overblown. "All this talk about Trump’s policies are going to cause inflation to kick up again is just nonsense," he said during a CNBC interview on Sunday, as reported by Business Insider.

Instead, Hanke thinks inflation will keep sliding, falling below the Federal Reserve’s 2% target in 2025. For him, the real driver isn't the White House – it's the Fed and the money supply.

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The Real Issue: Money Supply

Hanke points to a shrinking money supply as the big deal. Since 2022, the U.S. money supply has been contracting – a rare event. It's happened only four times in the last century. And each time, the aftermath wasn't pretty: recession or depression.

“The money supply, by the way, is growing at 2.6% year-over-year and that’s below Hanke’s golden growth rate of 6%, which is consistent with hitting a 2% inflation target,” Hanke explained. In short, inflation isn't coming back anytime soon.

Even though the Fed's M2 supply measure has started ticking back up, it's not enough to change his mind. Hanke is still predicting a recession in 2025.

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What About Trump's Policies?

Many Trump critics have warned that his trade policies, tax cuts and immigration restrictions could stoke inflation. But Hanke isn't buying it. “It depends on what the Fed is doing and what the monetary policy picture looks like with the money supply,” he said.

Hanke even praised Trump's incoming administration. He thinks economic deregulation will give GDP a nice bump without triggering inflation.

Trump's pick for Treasury Secretary, Scott Bessent, also gets a nod from Hanke. Bessent has floated strategies to spread out any inflationary impact from Trump's trade plans, which could help ease skeptics’ concerns.

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Hanke's confidence doesn't mean smooth sailing for everyone, though. Lower inflation could still come with a cost – like that looming 2025 recession he keeps warning about. “Recession is baked into the cake,” he's said before, pointing to the Fed's tight grip on money supply. That could mean slower wage growth and a tougher job market ahead for regular folks. Even with inflation cooling, the economy's not out of the woods yet.

The Bottom Line

Hanke's message is clear: Stop panicking. The Fed, not Trump, is running the show on inflation. And with a contracting money supply, inflation is on track to keep falling next year.

“The fuel for the economy, to make it simple, is the money supply,” Hanke said. So, if you're bracing for runaway prices in 2025, maybe hit the brakes. Hanke says it's “nonsense.”

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