Economist Predicts 'Whopper' Recession In 2023 Following Historic Inflation

The word “recession” has been spoken about more in 2022 than seemingly ever before. Inflation, combined with a lack of resources for a multitude of reasons, has seen the prices of most things increase to levels that have never been seen. For months, people have held onto the hope that a recession isn’t on the cards.

However, an economist predicts a ‘whopper’ recession in 2023 if things continue the way they have been in recent months. Steve Hanke works at Johns Hopkins University as a professor of applied economics and doesn’t just think that higher interest rates are to blame. In fact, it could be a combination of things.

What is M2?

M2 is the main thing that’s used when it comes to future inflation, but what is M2? It’s a calculation of the money supply from a combination of things. It uses elements measured by M1, which includes checking deposits and cash, alongside near money, which is money on interest accounts, money market securities, and savings deposits. It’s challenging to measure, as everyone has a different concept of what money is when it comes to easy-to-liquid assets compared to money tied into other ventures.

Ignoring the lack of M2 growth could be an issue

Steve Hanke spoke to CNBC about his thoughts on a whopper recession in 2023 and believes that the Fed is ignoring M2. In fact, the economist says that there has been zero M2 growth for the last five months, meaning a rise in interest rates might not bring inflation under control as people hope. Things haven’t changed in 2022’s M2 since February after an “unprecedented growth of money supply” that started in February 2020.

Sustained inflation could be a factor

The global pandemic threw a wrench in the works when it came to the global financial market. For one, no one expected the growth in M2 that came with the pandemic, and inflation didn’t match the rise. Now, Steve Hanke believes we’re paying the price for it all with increased levels of inflation that are growing out of control. The problem? Inflation is rising while M2 isn’t - two things that should go hand in hand. If things continue the way that they are going, Hanke believes that we could hit a whopper recession in 2023 that may continue well into 2024 until things are back under control.

While Steve Hanke has predicted a whopper recession in 2023, there is no way of telling what’s around the corner in the financial markets. After all, the last few years have taught us that a lot can happen and can change almost overnight. It seems, for now, inflation has leveled out somewhat, but what that means for the months going forward is still up in the air.