Is This The Last Rate Cut? Economist Steve Hanke On Fed's Next Move

Summary

Steve Hanke, professor of applied economics at Johns Hopkins University, joins David Lin to discuss the Fed's January decision to hold rates steady and the Bank of Canada's 25bp cut. Hanke argues the Fed remains too tight because money supply and credit growth are below his 6% golden growth rate, which should push inflation below 2% and support long-term bonds. He warns the US stock market is in bubble territory with correction risk, the Canadian economy is weak and at risk of recession, and high-yield credit investors are taking too much risk for little compensation. He also criticizes the Bank of Japan's rate hike as based on a flawed wage-price inflation view.

• Fed held rates steady; Hanke agreed with market pricing for no near-term cuts.
• Hanke says M2 growth at 3.9% and bank credit growth at 3.5% are below his 6% golden growth rate, so Fed policy is too tight.
• He expects inflation to fall below 2% by year-end, which should benefit long-term Treasury bonds.
• He sees the US stock market as a bubble with 15-30% correction risk and little equity risk premium.
• Bank of Canada cut 25bp; Hanke calls it somewhat aggressive and warns of a weaker Canadian dollar.
• He says Canada's economy is weak and at risk of recession.
• He warns high-yield credit spreads have little juice left and investors are taking too much risk.
• He criticizes the Bank of Japan's rate hike as based on a flawed wage-price inflation channel.