Economics professor warns ‘we definitely have a bubble in the stock market'

• The Fed reversed course in December, halting quantitative tightening and beginning to expand its balance sheet again, with plans to buy $40 billion in Treasury bills that Hanke characterizes as 'monetizing the deficit'
• Consumer price inflation remains stuck at 2.7%, well above the Fed's 2% target, yet monetary policy is loosening rather than tightening
• Hard assets including gold, silver, platinum, and copper have hit record highs, with Hanke predicting continued price increases in commodities and warning of 'definitely a bubble in the stock market'

Summary

Key Warning: Johns Hopkins University Professor Steve Hanke warns that the U.S. stock market is experiencing "definitely a bubble," driven by the Federal Reserve's pivot toward easier monetary policy under political pressure from the Trump administration.

Critical Data Points:

• December CPI inflation: 2.7%, unchanged from November and well above the Fed's 2% target
• Fed announced plans to buy $40 billion in Treasury bills in December
• The Fed halted quantitative tightening and began expanding its balance sheet again

Main Arguments:

Hanke contends the Fed has abandoned its inflation fight, shifting from tightening to loosening monetary policy. He characterizes recent Fed criticism as a "ruse" to force looser monetary conditions, which he believes will keep inflation elevated. The economist argues this policy shift amounts to "monetizing the deficit," increasing money supply and fueling inflation.

Market Implications:

• Asset bubbles are forming across markets
• Commodities expected to rise broadly
• Hard assets reaching record highs: gold, silver, platinum, and copper
• Lithium showing signs of recovery
• Commercial banks will gain greater lending capacity through upcoming regulatory changes, further expanding credit and money growth

Additional Concerns:

Hanke criticized Trump's proposal for 10% price caps as "outright price controls" and dismissed claims that cheaper energy from new sources like Venezuelan oil could mitigate inflation. He concluded that "the inflation genie is not going back into the bottle" under current policy direction, with looser monetary conditions continuing to inflate asset prices.