(Kitco News) A quiet acceleration in bank lending and money supply growth is setting the stage for renewed inflation, a risk markets may be underestimating as they focus on oil prices, rate cuts, and artificial intelligence, according to Steve Hanke, Professor of Applied Economics at Johns Hopkins University.
Speaking with Kitco News on April 23, 2026, Hanke said the prevailing narrative around inflation misses the central role of commercial banks in creating money.
“I think the markets are very complacent right now,” he said.
Bank lending drives inflation beneath the surface
Hanke’s framework centers on the mechanics of bank credit, which he said directly expands the money supply across the economy.
“When they increase the loans that they’re extending, that increases somebody’s checking account, and checking accounts are part of the money supply,” he said.
He added that “commercial banks produce about 80%” of broad money, a dynamic he said is widely overlooked in market analysis.
Loan growth in the United States is approaching 7% annually, he said, above the roughly 6% pace consistent with the Federal Reserve’s 2% inflation target.
“We’re not going to get the inflation genie back in the bottle,” he said.
Hanke pointed to recent data as confirmation of the trend, noting that U.S. headline CPI rose from 2.4% in February to 3.3% in March, a move he said reflects earlier monetary expansion.
Oil narrative masks monetary reality
Hanke rejected the widely cited link between energy prices and inflation, arguing that oil price increases are often misinterpreted as causal.
“It’s not changes in the oil prices by the way,” he said, adding that “Those are relative price changes.”
Instead, he said inflation reflects prior changes in money supply, with current price pressures already “baked in” due to earlier credit expansion.
Hanke used Japan in 1979 as an example, when inflation declined despite rising oil prices after the Bank of Japan had tightened money supply growth beginning in 1974. He contrasted that with the period leading into the 1973 oil shock, when rapid money supply expansion contributed to rising inflation.
Gold pullback a reset within secular bull market
Hanke believes the monetary backdrop continues to support higher gold prices, despite recent volatility.“I think the secular bull market is intact,” he said.
He described the recent pullback as a typical consolidation following a rapid rally.
“You had a lot of characters in there with weak hands,” he said. “Those have been shaken out.”
Hanke maintained a longer-term target of $6,000 to $7,000 per ounce, arguing that ongoing money supply growth will continue to support the metal.
Commodity supercycle gains traction
Hanke said gold is part of a broader shift into commodities, supported by both monetary conditions and geopolitical developments.
“I think we are entering a super cycle again with the commodities,” he said.
He pointed to rising prices across critical materials such as lithium and vanadium, along with increased inventory building as governments and companies seek to hedge supply chain risks.
That shift, he said, reflects a broader move toward ‘HALO’ assets, shorthand for heavy assets with low obsolescence, as geopolitical uncertainty drives precautionary demand.
AI disinflation narrative faces limits
Hanke also challenged the view that artificial intelligence will deliver sustained disinflation through productivity gains. “This is the hype coming out of Silicon Valley,” he said.
He pointed to U.S. data showing that both GDP and productivity declined in 2025, arguing that the expected productivity boom has yet to materialize. Historically, he said, even periods of strong productivity growth have led to inflation when money supply growth accelerates.
Bond market shift reflects changing inflation regime
Hanke said rising inflation expectations are likely to push yields higher, reducing the appeal of long-duration bonds. “You don’t want to be long bonds,” he said.
He added that the long-running bull market for bonds that began in 1980 has broken down, leaving investors more exposed to inflation risk in fixed income markets.
Markets slow to adjust
Hanke said the core issue is not just complacency, but a misunderstanding of how inflation is generated.
He argued that inflation expectations are rising for the wrong reasons and that accelerating money supply means “more inflation” is already “baked in the cake,” regardless of near-term movements in oil or other commodities.
