The Fed’s Inflation Model Is Broken

Steve Hanke's takeaways

• Top takeaway Hanke's central claim is that the Fed's post-Keynesian macroeconomic models do not even measure the money supply and exclude the quantity theory of money, so the signal he considers most important for understanding inflation is absent from the framework.
• He frames policy as having already swung the other way: quantitative tightening ran until December 2025, and as of this video's July 2026 as-of date the Fed is in quantitative easing.
• Hanke rejects outright the Fed's stated view that there is no reliable relationship between the money supply and economic activity, calling that claim nonsense, and notes Jerome Powell has said it explicitly and repeatedly.
• He is pressing the incoming Fed leadership to put it on the record, hoping Warsh sees the light and keeps the quantity theory of money and money supply central to hitting the inflation target, while noting Warsh has not actually said this explicitly yet.