Widely regarded economist Larry Summers has said again that the Federal Reserve should keep raising rates aggressively. The former U.S. Treasury Secretary and Harvard President insists this is the only way to tame inflation. Under the present circumstances, inflation will get much worse. A careful look at his opinion and forecast shows that inflation and a recession could happen simultaneously, leading to the worst economic period since the Great Recession, when the jobless rate reached 10%.
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Summers is a staple on CNBC, Bloomberg and CNN Business. His messages are almost everywhere, at least as far as the business community is concerned. For all anyone knows, members of the Federal Reserve tune in every time he is on the air.
Summers recently said on CNN, “I look at economic history and I see that there are many times when the Fed didn’t do enough and so inflation re-accelerated, but I can’t find any times in the last 60 years when the Fed did too much.” That means his measurement extends back to when John F. Kenney was president. He said this in the shadow of another Fed interest rate increase of 0.75%, the fourth time it hiked rates as much this year.
The Fed’s benchmark rate as of later this week will be 3.75%. Summers thinks that rate will need to hit 5.5%. Summers has made several estimates about how high unemployment will need to be to bring inflation back toward 2.5%. These generally have been above 5% and as high as 7%. Today, the rate is 3.5%. That means Summers believes the economy will need to shed several million jobs.
Inflation will not drop from the current rate of 8% overnight. That means falling employment could crash into rising prices. Americans would be caught in a terrible vice for months.
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