The former US Treasury secretary says stubbornly high inflation means the markets are too optimistic about the outlook for interest rates.
Former US Treasury secretary Lawrence Summers warned that the Federal Reserve will probably need to raise interest rates more than markets are currently expecting, thanks to“We have a long way to go to get inflation down” to the Fed’s target, Summers told Bloomberg Television. As for Fed policymakers, “I suspect they’re going to need more increases in interest rates than the market is now judging or than they’re now saying.
Summers was speaking hours after the latest US monthly jobs report showed an unexpected jump in average hourly earnings gains. He said those figures showcased continuing strong price pressures in the economy.“For my money, the best single measure of core underlying inflation is to look at wages,” said Summers, a Harvard University professor and paid contributor to Bloomberg Television. “My sense is that inflation is going to be a little more sustained than what people are looking for.
“There are all these mechanisms that kick in,” he said. “At a certain point, consumers run out of their savings and then you have a Wile E Coyote kind of moment,” he said in reference to the cartoon character that falls off a cliff.
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