US Economy in Decline? Exploring Recession Signals and Investor Strategies

Economist Steve Hanke, a professor of applied economics at Johns Hopkins University, has raised concerns about the Federal Reserve’s delayed action in cutting interest rates, signaling a potential economic downturn for the US. He pointed out that the US money supply has been shrinking since July 2022, an occurrence that has historically led to recessions. This contraction is only the fourth in US history, with previous instances linked to recessions such as those in 1920–21, 1937–38, 1948–49, and the Great Depression.

Hanke emphasized that changes in the money supply play a more significant role in economic shifts than interest rates. As the Federal Open Market Committee (FOMC) meeting approaches, traders are anticipating the possibility of rate cuts, which would be the first in four years. The likelihood of a 50-basis-point reduction is at 67%, with a 33% chance of a 25-basis-point cut, according to the CME FedWatch tool.

Regarding investments, Hanke advised caution toward risk assets like stocks and equities, suggesting safer alternatives such as US Treasuries and gold. He argued that stocks are overpriced and will likely suffer during a potential recession, while US Treasury bonds and gold are positioned as safer bets. He highlighted that bond yields are currently higher than stock yields, making bonds more attractive for investors seeking stability. Hanke also predicted that the gold market would continue its bullish trend, offering a secure investment option.

On the topic of bitcoin, Hanke warned of its heightened volatility, particularly in the lead-up to the 2024 US presidential election. He described bitcoin as a highly speculative and risky asset, advising risk-averse investors to steer clear of adding it to their portfolios.

Hanke also expressed concerns about the economic policies of both 2024 US presidential candidates, Kamala Harris and Donald Trump. He criticized Harris for her government spending plans and tax credit proposals, while condemning Trump’s protectionist policies as damaging to the US economy.

This analysis reflects ongoing shifts in the US economy, offering insights into safer investment strategies and the potential implications of upcoming political events.