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Inflation is now at 7%, the highest in 40 years, and will stay until 2024 - Steve Hanke

Kitco News

Headline CPI climbed to 7% in December 2021, the highest level since 1982, according to data released Wednesday by the U.S. Bureau of Labor Statistics.

Steve Hanke, professor of applied economics at Johns Hopkins University told David Lin, anchor for Kitco News, that inflation will likely remain elevated until 2024, after which the Federal Reserve will have to focus on reducing the money supply.

“[Inflation] will stay with us in that 6% to 9% range going into 2024,” Hanke said, noting that the residual excess money supply that has been created over the past two years will continue to inflate consumer prices.

Contrary to what politicians have been claiming, inflation is not caused by bottlenecks in the supply chain, but rather, by increases in the money supply, Hanke said.

It’s the car prices going up, that’s why we have inflation. The public is so annoyed with this already, that sooner or later they’re going to have to pivot into a slower growth rate in the money supply,” he said.

Higher interest rates alone will not be enough to combat inflation, as interest rates don’t directly affect the level of the money supply, Hanke said. The government will have to make a concerted effort to lower the M2 money stock, which they will likely do after 2024.

The major risk this year is that should interest rates rise too fast, too soon, the Fed could cause stagflation and put the economy back into a recession.

“I hope they don’t panic into this and increase the interest rates too rapidly because then, we will not only get the inflation that’s baked in the cake, we will get a recession,” he said.

For more information on inflation and the Fed, watch the video above.

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