Why one veteran economist is doubling down on his 2025 recession call after Trump's victory

• Economist Steve Hanke still thinks the US is on track for a recession early next year.
• That's due to a recent contraction in the money supply, which preceded past downturns, he told NYSE TV Live.
• Trump's tariffs could also weigh on consumer demand, he said, exacerbating the economic outlook.

The US economy is still likely to slow into a recession next year — and Trump's election victory may have just made the economic outlook even more challenging, according to top economist Steve Hanke.

The Johns Hopkins professor, who's warned of a coming downturn for months, said he was sticking to his 2025 recession call in an interview with NYSE TV Live on Friday. That's mainly due to a concerning trend in the money supply, he said, referring to the total volume of money flowing around markets and the economy.

M2, one class of the money supply, shrank from mid-2022 to March 2024, according to Federal Reserve data. That's a rare trend that's only happened four times over the last century, and has ended in a recession in every instance, Hanke said.

The M2 money supply started to re-expand this year, rising 2.47% year-per-year at the end of September. But that rate remains well-below the 6% growth Hanke thinks is needed to maintain inflation at the Fed's target rate — a sign, in his view, that the economy is growing too slowly.

"My view is that the economy is going to continue to slow down and probably will experience a recession next year," Hanke said.

"The fuel for the economy, to make it simple, is the money supply. And what's going on in the money supply? And if you get significant changes in it, you get significant changes in nominal GDP," he later added.

Trump's protectionist economic policies also impose a "big negative" for the economy, Hanke said.

Economists say some aspects of Trump's agenda, like his plan to levy steep tariffs on US imports, are expected to boost economic growth, something that would challenge Hanke's recession outlook. Also, the policies are seen by some as inflationary, which complicates the deflation piece of Hanke's argument.

But, if tariffs raise costs for consumers, that could actually backfire on the US economy, Hanke said, as higher prices could lead consumers to demand fewer goods.

"It's very clear. If you put tariffs on imports, it's like putting a sales tax on those imports. And if you put a sales tax on something, what happens? People don't demand as much of it," he added.

Trump has pushed back on the idea that his economic plan would be inflationary, and has maintained that his policies will actually lower prices for Americans. He implemented tariffs during his first term as president without a significant inflation increase, but economists note that his tariff plans this time around are far more wide-reaching, explaining the difference in inflation forecasts.

Most forecasters, though, still anticipate a soft-landing for the US economy, with inflation trending closer to the Fed's target rate, while economic growth has remained solid. Consumer prices rose 2.6% on a yearly basis in October, slightly hotter than last month's levels, but on par with expectations. Real GDP, meanwhile, is estimated to grow at a 2.5% clip over the fourth quarter, according to the Atlanta Fed's latest GDPNow reading.