A top economist nicknamed the ‘Money Doctor’ gives the Fed a failing grade when it comes to taming inflation and saving the economy

While recession talk seems to have receded in some corners, 56% of CFOs surveyed recently expect a recession in the second half of 2023. One prominent economist agrees—and has a scalding take on how the Fed has mishandled the economy, not once but twice.

Steve Hanke, an economist who forged a 50-year career as a global “Money Doctor” advising heads of state and finance ministers, asserts a root cause of high inflation is how the Fed has handled the U.S. money supply. Hanke, a professor of applied economics at Johns Hopkins University, claims that “the Fed caused the inflationary burst by ignoring the money supply, while producing it in excess,” Fortune’s Shawn Tully writes in a new piece. Tully explains:

“Hanke is a leading champion of monetarism, a field holding that changes in the money supply are the top force determining the rate of inflation and expansion or contraction in GDP. Milton Friedman, its most celebrated champion and a Hanke mentor, had the monetarist formula for changes in its four components, MV = Py (money supply times velocity of money equals the price level times quantity of goods and services) emblazoned on his red Cadillac’s California license plate. As Friedman explained, ‘Inflation is always and everywhere a monetary phenomenon, in the sense that it can only be produced by a more rapid increase in the quantity of money than in output.’”

“First, the Fed engineered an absolutely unprecedented explosion in M2 [the money supply] that Chairman [Jerome] Powell claimed would have no effect on inflation,” Hanke told Tully. He’s referring to the surge in money supply at the height of the pandemic. “The Fed put up a smoke screen about the causes, all these nonmonetary outside factors that were supposed to be responsible for the soaring CPI [consumer price index]. It was the COVID shock, the oil and OPEC shock, the war in Ukraine shock, the supply-chain shock.”

Hanke continues: “All of those things only affect relative prices, how prices of used cars, say, rise while the cost for appliances stays flat, not overall inflation, which is all about the money supply. You have 785 economists in the Fed system, yet none that we know of predicted the inflationary outburst.”

Now the Fed is “overreacting,” according to Hanke—“botching” the cure to inflation by “dismissing M2’s importance and squeezing too hard,” Tully writes. A combination of the Fed’s high interest rates and the banks’ tightening of credit will eventually contract the amount of money consumers have available to spend, which will pummel M2, Hanke contends. He predicts a painful and unnecessary recession will result.

You can read more on Hanke’s analysis of the Fed’s actions leading up to this point, along with his assessment of the future of the economy here. 

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

New research by the CFA Institute, the global association of investment professionals, and the FINRA Foundation, a not-for-profit organization, analyzed the investment-related behaviors of Gen Zers with and without investment accounts. Fifty-six percent of Gen Zers (ages 18–25) surveyed reported owning at least some investments. Nineteen percent are currently invested in crypto and/or non-fungible tokens (NFTs) only.

Gen Z investors learn about investing and finances primarily through social media (48%) and internet searches (47%), according to the report. YouTube is the top source for those who do online searches. Other top methods for learning about investing include parents and family (45%), friends (40%), and financial apps (37%). Less than a third learn from financial companies (31%) or financial professionals (30%).

U.S. Gen Z investors are predominantly male (58%), slightly older (79% are 20 years old and up), and more likely to have a college degree (42%). The findings are based on a global survey of more than 2,800 Gen Z, millennial, and Gen X respondents from the U.S., Canada, the U.K., and China.

Going deeper

"Rihanna singing or an A.I.-generated fake? The music industry is threatened by the latest buzzy technology," a new piece by Fortune's Jeremy Kahn, delves into the implications of "musical deepfakes" that have exploded in number. "The new reality for the music industry is part of a broader shake-up in the entertainment industry wrought by increasingly sophisticated A.I.," Kahn writes. "This is a potential nightmare for the recording industry. If current trends continue unchecked, artists could lose control over their sound and their earnings. Meanwhile, record labels risk losing profits."

Leaderboard

Anna Manz was named CFO at Nestlé. Manz is currently CFO for the London Stock Exchange Group (LSEG) and will join Nestlé as CFO as soon as she is released from her present duties. At that time, she will also become a member of the executive board of Nestlé S.A. as an EVP. Manz will succeed François-Xavier Roger, EVP and CFO at Nestlé, who has decided to step down to pursue new professional challenges. Roger will remain in his role until his successor's arrival. Before LSEG, Manz served as CFO and executive director at Johnson Matthey PLC. Before that, she spent 17 years at Diageo PLC in several senior roles, including chief strategy director, CFO of Asia Pacific, and group treasurer.

Graeme Pitkethly, CFO at Unilever, will retire by the end of May 2024. The board will now proceed with a formal internal and external search for his successor. Pitkethly joined Unilever in 2002 and was previously EVP and general manager of the Unilever U.K. and Ireland business. Before that, he held several senior financial and commercial roles within Unilever, including SVP of finance for Global Markets; global head of M&A; head of treasury, pensions and tax; and CFO of Unilever Indonesia.

Overheard

"It’s not a bubble yet."

—Renowned economist Jeremy Siegel, a Russell E. Palmer professor of finance at the Wharton School at the University of Pennsylvania, told CNBC on Monday that he's still bullish on a Big Tech boom fueled by A.I. despite concerns around whether it would lead to a repeat of the dotcom bubble in the late 1990s.