Top Economist Steve Hanke Forecasts Recession and Stock Market Decline by 2024

Renowned economist Steve Hanke has issued a stern forecast regarding the state of the economy, predicting a downturn in the stock market and a recession, alongside an inflation rate that could drop below 2% by the end of 2024. Hanke, who has an extensive background in economics and has previously advised governmental figures, bases his predictions on current market valuations and monetary supply analyses.

Overvalued Stock Market

According to Hanke, a professor at Johns Hopkins University, there's a prevailing sentiment that the stock market is significantly overvalued, particularly after a substantial surge in 2023. He suggests that as the economy slows down and enters into recessionary territory, corporate earnings are likely to decrease, which in turn would lead to a drop in stock prices. Historically, the market has seen such a pattern when economic hardships lead to a reduction in multiples - a method often used to value stocks based on company earnings.

Monetary Supply and Inflation

Hanke, alongside his colleague John Greenwood, believes that alterations in the U.S. monetary supply, specifically in the M2 money supply, play a crucial role in the country's inflation rates. They argue that the changes in the money supply, rather than supply-chain disruptions or fluctuations in commodity prices, are the main drivers of inflation. Hanke and Greenwood argue that maintaining a 6% annual growth in the M2 money supply should stabilize inflation around the Federal Reserve's target rate of 2%.

In past statements, Hanke has warned of the risks of a reduced money supply and has emphasized the possibility of a looming recession. His predictions counter the optimism of some investors who expect a 'soft landing' for the economy, meaning a mild slowdown rather than a full-blown recession. Despite this, some investors are becoming cautious, exploring diversified investments such as real estate to hedge against potential economic downturns.

recession, stocks, inflation