Larry Summers, economist and former Treasury Secretary, has been a pessimist about the U.S. economy for months. One reason for his concern is his belief that inflation will worsen. He recently doubled down on his prediction, telling “Meet the Press”: “The painful fact, though, is that historically when we’ve had inflation above 4 percent and we’ve had unemployment below 4 percent, essentially always, since World War II, that’s been followed by a recession within the next two years.” The word “always” there should make Americans tremble.
Near term, inflation will be worse than Summers said. It likely will run above 8%, based on the consumer price index, through at least the summer. If oil prices stay high, prices will remain above $4 for a gallon of regular gasoline nationwide. The costs of some foods have risen by double-digit percentages so far this year. And prices of new and used cars have jumped more than 20% in the same period.
The idea that unemployment above 4% could contribute to a gross domestic product decline is counterintuitive. However, a low jobless rate helps full inflation.
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The Federal Reserve has said it will continue to raise rates to cut off inflation. However, many experts believe this will be too little too late. An alternative view is that higher interest rates will strangle consumer spending. Mortgage rates already have risen above 5% in some parts of the country. They were below 3% a year ago. The rise in the housing market, which has been a major driver of consumer confidence, is going away.
Most recessions hit the United States without warning. This was certainly true in 2008. Summers, at least has given a warning. One can read into his statements that there is nothing to be done to prevent it.
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