Top Economist Warns the Fed Has Given Up on Beating Inflation

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Prominent economist Steve Hanke, a professor of applied economics at Johns Hopkins University, is sounding the alarm about a significant change in U.S. monetary policy.

According to Hanke, the Federal Reserve has quietly shifted away from its earlier focus on taming inflation and is now easing monetary policy — a move he believes is being driven in part by political pressure from the current presidential administration.

Key Takeaways

• Steve Hanke says the Federal Reserve has already pivoted away from fighting inflation, even though price growth remains above target.
• Resuming balance sheet expansion and Treasury purchases, in Hanke’s view, means the deficit is effectively being monetized, keeping inflation risks alive.
• Looser monetary policy is fueling asset bubbles, with hard assets and equities likely to keep rising if current conditions persist.

Hanke made his comments during a recent interview, where he argued that the central bank’s latest actions risk prolonging elevated price levels and inflating financial bubbles across markets. At the heart of his concern is the Federal Reserve’s response after the most recent inflation data.

Despite headline consumer price inflation still running above the central bank’s 2% target, the Fed halted its quantitative tightening program in December and announced plans to increase its holdings of Treasury securities by purchasing $40 billion in bills. Hanke interprets this as a direct shift from tightening to easing, signaling a new phase in monetary policy that could have broad economic consequences.

Rather than fighting inflation, Hanke says the combination of balance sheet expansion and a growing money supply suggests the Fed is effectively monetizing government deficits — a process where the central bank increases the money supply by purchasing government debt. Historically, greater money creation has tended to push prices higher over time, and Hanke warns the “inflation genie” may not be easily put back in the bottle.

Policy Changes Could Supercharge Lending and Price Growth

Beyond the Fed’s own policies, Hanke also highlighted regulatory shifts that he believes will further loosen monetary conditions. With commercial banks in line for rule changes that could significantly raise their lending capacities, Hanke predicts that the credit system will expand more rapidly. Because banks are responsible for creating a large share of the nation’s money supply through lending, increased credit could accelerate money growth and add further upward pressure on prices.

Hanke did not hold back on his views about other policy proposals either, such as a recently suggested cap on credit card interest rates. He characterized such caps as price controls — interventions he believes distort markets without effectively addressing underlying inflationary forces.

Hard Assets and Market Valuations on the Rise

Looking at financial markets, Hanke sees clear signs of an overheating asset landscape. He pointed to record-setting price moves in commodities and key materials, including precious metals like gold, silver, and platinum, as well as industrial metals such as copper. In his view, loose monetary conditions and rising liquidity are lifting these hard assets, and he noted that lithium — an increasingly critical element for batteries and clean-energy technologies — appears poised for a breakout as well.

Hanke’s overall assessment suggests that if the Federal Reserve continues down its current path, inflation may remain persistently above target and asset prices could continue to climb. For businesses, investors, and consumers, his warnings underscore a broader concern about the long-term impact of monetary policies that prioritize liquidity over price stability.