How Many More Rate Hikes Before Economy Blows Up? Steve Hanke Reveals What's Next

Summary

Steve Hanke, professor of applied economics at Johns Hopkins University, discusses the Fed after a 25 basis point rate hike under new Chair Kevin Warsh. Hanke argues Warsh is adopting a monetarist framework, meaning the Fed will keep raising rates until money-supply growth slows to about 6%. He expects the 10-year Treasury yield to continue rising, possibly another 50 basis points into a 'red zone' for the economy, and sees the market underpricing further rate hikes. Other topics include Treasury buybacks, labor-market softness, the yen carry trade, and Europe's thin capital markets.

• Fed raised rates 25 bps; Steve Hanke says Chair Kevin Warsh is embracing monetarism.
• Hanke expects the Fed to keep hiking until money supply growth slows to about 6%.
• He argues the market is underpricing the number of additional rate hikes.
• He expects the 10-year Treasury yield to rise further, possibly another 50 bps.
• He attributes long-end yield pressure to money-supply growth, inflation, deficits, Treasury issuance, and AI credit demand.
• Hanke says the Treasury buyback disappointed markets; yields rose after the operation.
• He sees the U.S. labor market as weaker than headline numbers suggest.
• He discusses the yen carry trade and Europe's thin capital markets, but offers no clean directional trade.