‘Roaring’ Inflation To Force Rate Hikes; This Explodes Next | Steve Hanke
Steve Hanke discusses the new Fed chair Kevin Warsh's first FOMC meeting, arguing that inflation is driven primarily by money supply growth from commercial bank lending rather than the Fed funds rate. He contends the U.S. suffered a major strategic loss in the Iran conflict and warns that oil prices will rise again as inventories are replenished.
Summary
In this interview, economist Steve Hanke analyzes Kevin Warsh's debut as Federal Reserve chair and the implications for monetary policy. Hanke explains that the Fed funds rate is less important than bank regulations in controlling money supply, since approximately 80% of money supply growth comes from commercial bank lending, not the central bank. He notes that inflation has doubled the Fed's 2% target and attributes this to accelerating money supply growth over the past 18 months.
Regarding Warsh's approach, Hanke observes that unlike Jerome Powell, Warsh has not explicitly rejected the quantity theory of money, suggesting he may be sympathetic to monetarism, though Hanke characterizes him as "monetarist light" rather than a full monetarist. Hanke criticizes Warsh's task forces as being composed entirely of Fed insiders, lacking external monetarist perspectives that could provide genuine alternative viewpoints.
On communication changes, Hanke approves of Warsh's move toward shorter, clearer statements, noting that the Fed's historically complex communications have confused markets and spawned entire industries of Fed watchers. He is skeptical about the usefulness of dot plots as forecasting tools, arguing the Fed should focus on clarity rather than detailed projections.
Hanke addresses the Iran deal extensively, characterizing it as a major U.S. strategic defeat. He argues the war's stated objective was regime change, which failed despite decapitation of Iranian leadership. He contends Iran now controls the Strait of Hormuz de facto through toll/insurance mechanisms, whereas it was previously open for free passage. Regarding the $300 billion investment fund, Hanke questions its source and views it as war reparations.
On the economy going forward, Hanke predicts inflation will remain elevated because "the inflation genie is out of the bottle." He expects oil prices to rise again as the U.S. replenishes depleted strategic reserves, and forecasts continued modest real economic growth supported by money supply acceleration, but accompanied by significant inflation.
About this episode
🔒 Get 20% off DeleteMe by going to https://joindeleteme.com/DAVIDLIN and use code DAVIDLIN to protect your privacy! And 🔈 Listen to What the Hack?, an award-winning, true cybercrime podcast: https://pod.link/1571482669 Steve Hanke, Professor of Applied Economics at Johns Hopkins University, examines Kevin Warsh's debut as Federal Reserve chair, the forces driving monetary policy, and the economic stakes of recent developments in the Middle East. *This video was recorded on June 18, 2026. To get 5% off of your CoolWallet purchase, use my link: https://www.coolwallet.io/discount/davidcw Subscribe to my Briefs channel: https://www.youtube.com/@DavidLinReportBriefs Subscribe to my free newsletter: https://davidlinreport.substack.com/ Listen on Spotify: https://open.spotify.com/show/510WZMFaqeh90Xk4jcE34s Listen on Apple Podcasts: https://podcasters.spotify.com/pod/show/the-david-lin-report FOLLOW STEVE HANKE: X (@steve_hanke): https://x.com/steve_hanke Capital, Interest, And Waiting: https://shorturl.at/jBed6 Making Money Work: https://shorturl.at/TLTHC Profile at The Mises Institute: https://mises.org/profile/steve-h-hanke FOLLOW DAVID LIN: X (@davidlin_TV): https://x.com/davidlin_TV TikTok (@davidlin_TV): https://www.tiktok.com/@davidlin_tv Instagram (@davidlin_TV): https://www.instagram.com/davidlin_tv/ For business inquiries, reach me at [email protected] DISCLAIMER: This video is for informational and educational purposes only and does not constitute financial, investment, legal, or tax advice. Always conduct your own research and consult a licensed financial professional before making any investment decisions. The views and opinions expressed by guests are solely their own and do not represent the views of this channel. Any forecasts or forward-looking statements are based on personal opinions and are not guarantees of future performance. This channel may include sponsors or affiliates. Their inclusion does not constitute an endorsement, and the channel is not responsible for the performance, claims, or actions of any sponsor, affiliate, or third party. No content in this video should be interpreted as a solicitation to buy or sell any securities or assets. Investments carry risk, including the potential loss of principal. 0:00 - Introduction 0:56 - Warsh's First FOMC: Why No Rate Hike 7:50 - Reading the Rate Hike Probabilities 11:47 - Inflation, Money Supply, and Bank Regulation 16:40 - The Task Forces and Monetarism at the Fed 26:08 - Fed Communication, Forward Guidance, and Dot Plots 33:57 - Iran, Oil, and the Strait of Hormuz 41:23 - Did the United States Win the War? 46:50 - Economic Outlook for the Rest of the Year #economy #investing #inflation
Key Insights
- Hanke argues that approximately 80% of money supply growth originates from commercial bank lending, not the Federal Reserve itself, making bank regulations more important than Fed funds rate changes for controlling inflation
- Warsh has not explicitly rejected the quantity theory of money unlike Jerome Powell, who has testified on record that the Fed finds no reliable linkage between money supply changes and economic activity
- Post-Keynesian economic models dominating universities for the past 30 years exclude money as an aggregate variable, a departure from macroeconomic theory since the 15th century that always included the quantity theory of money
- Hanke contends the U.S.-Israeli war on Iran represents 'the biggest strategic loss the United States maybe has ever occurred in its history' because the objective of regime change failed despite all other costs being incurred
- Iran now de facto controls the Strait of Hormuz through insurance fees and toll mechanisms rather than free passage, representing a fundamental shift in global trade routes that was not the case before the war
- Warsh did not submit a dot plot at his first FOMC meeting, signaling skepticism about whether dot plots are useful policy communication tools, despite markets now using them as de facto forward guidance
- Commercial banks currently have substantial lending capacity and profitability, which will increase further if bank regulations are loosened, potentially accelerating money supply growth and inflation
- Oil prices temporarily fell to $75 per barrel following the Iran deal, but Hanke predicts they will rise again because the U.S. has depleted strategic petroleum reserves and must rebuild them through a surplus, which requires months of supply replenishment
Topics
Transcript
[0:00] The inflation genie is out of the bottle. It's very hard to argue against not squeezing and tightening things down. >> So, you don't think it's a certainty the Strait of Hormuz will remain open? >> It will be open in quotes, but it it it will be one way or another controlled by Iran going forward. This this is, for the record, I think the the biggest [music] strategic loss the United States maybe has ever occurred in its history. >> We're back with Steve Hanke, professor [0:31] of applied economics at Johns Hopkins University, and we're speaking the day after Kevin Warsh took the podium as Fed chair at the FOMC for the first time yesterday. We're…
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