The United States shows strong signs of an imminent recession. It will arrive by the end of this year, according to Steve Hanke, a professor of applied economics at Johns Hopkins University.
The former Reagan advisor argues that despite low inflation levels, the administration’s uncertainty caused by current tariff policies is driving investment. The current version of the Trump budget bill will exacerbate the fiscal deficit. Combined with insufficient growth in financial supply and already weak labor markets, it will exacerbate the US economic outlook.
Economic slowdown on the horizon
Surprising economic indicators continue to emerge regarding the health of the US economy. The Organization for Economic Co-operation and Development (OECD) has recently reported that the global economic outlook has been weakening.
The US numbers have caused big alarms. The OECD expects GDP growth to slow from 2.8% this year to 1.5% in 2026. We predict that the number of hankes will be lower.
He says the underlying economic challenges are multifaceted and have developed over the years. Hanke further believes certain economic policies from the Trump administration and the Federal Reserve will prove that they are insufficient to exacerbate the current situation or change the US financial trajectory.
How will Trump’s unpredictable trade policy undermine the economy?
An inconsistent, unpredictable approach to Trump’s tariff policy – ​​often with a change in their adoption attitude and subsequent reversal – is a major factor contributing to a weakening of the US economic outlook.
“The fact that he’s become a kind of A, we should say, tariff tantrums are a big thing that slows economic growth,” Hanke told Beincrypto.
Essentially, customs duties on imported goods amount to taxes on international transactions. Global trade is inherently advantageous for both buyers and sellers, but by imposing tariffs, this disruption ultimately harms the US economy.
“What does taxes do? It removes some of that surplus from the market, takes it and places it in the government’s Treasury. As a result, you’ll trade less. If you tax something, it slows international trade to reduce it, shorten its long story.”
In the meantime, this situation will also surprise investors’ confidence.
The impact of policy instability on market trust
In Hanke’s words, the unpredictable approach to current administration policies creates “regulatory uncertainty.”
“There are a lot of things that the Trump administration is changing or changing, and they are constantly changing their minds.
In a gentle search for the market, investors are withholding important investments.
“When you have it, investors who are investing in a new factory or something like that say, “Well, we’ll wait and calm down to see what happens.” They’re going to stop investing,” Hanke added.
This regime uncertainty has also impacted the bond market. Over the past two months, we have experienced an astounding sale that is particularly at odds with the current stable inflation rate.
In addition to policies of unpredictability, the worsening fiscal deficit is now a key headwind for the US economy, raising concerns between investors and political opposition.
Trump Settlement Bill to exacerbate the fiscal deficit crisis
According to the Center for Bipartisan Policy, the federal government’s fiscal deficit reached $1.1 trillion by April 2025, up 13% from last year.
Even more surprising, these high rates further inflate the US’s already $36 trillion national debt. Despite these numbers, if they pass, the latest version of one big beautiful bill from Trump will only add to the existing deficit, rather than cut it.
“Trump is what I call the fiscal Nincorpoop. He’s not paying attention to the deficit level. We have a budget that has a big debt load on it. The market is focused on that. That’s part of the administration’s uncertainty. What happens with the federal budget?
Beyond fiscal concerns, the Federal Reserve monetary policy plays an important role in the economic outlook.
Is interest rate cuts enough to avoid a recession?
Hanke believes that as the economy slows and the labor market weakens, the Federal Reserve can become falconry and lower interest rates.
Some financial markets and Wall Street forecasters expect two interest rate cuts by the end of the year, but he estimates there will be more aggressive cuts. Based on forecasts based on federal fund futures markets, Hanke foresees these reductions, possibly in the range of 50-150 basis points in September.
“We had a very weak labor market report (recently). The Federal Reserve has turned to the labor market, which is important. So as the economy slows and the labor market gets weaker, the Fed is even more disrupted,” Hanke said.
However, he also emphasized that focusing solely on interest rates is a false approach for central banks.
Reassessment of monetary policy
Hanke described Powell’s focus on interest rates as a “misguided approach.” Instead, the key to true determinants of economic activity and effective monetary policy lies in the money supply.
“The big problem is that the Fed doesn’t pay attention to growth rates and money supply. They argue that there’s not much relation between changes in money supply and changes in economic activity. This is wrong,” he said.
He believes that by enabling money supply to properly grow from the current 4.1% growth to his golden growth target of six, the Fed will be able to provide the “fuel” needed to expand the economy and move the US away from the looming recession.
“The Fed is still engaged in what is called quantitative toning, reducing the balance sheet and reducing the rate of increase in contribution to money supply.
Ultimately, his insights illustrate the urgent need for a fundamental readjustment of economic strategy.
Steve H. Hanke is a professor of applied economics at Johns Hopkins University. His latest book, Matt Sekerke, earns a way to rewrite the rules of the financial system.
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