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Lawrence Summers: Economy Not Yet Out of the Woods - Inflation Major Risk

By Belal Awad · August 6, 2023

In brief…

  • Ex-Treasury Sec. Lawrence Summers voiced concern about the possibility of inflation accelerating despite positive economic data.
  • He said the U.S. economy is not yet out of the woods and that declarations of victory are premature.
  • He said high wage inflation hold open the risk of higher overall inflation.
  • Summers warned that failure to contain inflation could lead to "serious problems" for the U.S. economy.
Ex-Treasurey Sec. Lawrence Summers believes the U.S. economy is not yet out of the woods.  WEF

Former U.S. Treasury Secretary Lawrence Summers called it “premature” to claim victory over inflation and that the U.S. economy is not yet out of the woods. Summers said that despite recent positive economic data, the risk of high inflation remains, most notably wage inflation, he told Bloomberg News.

Regarding the possibility of a “soft” landing,” Summers said, “I think the big story here all along is we’re trying to land the plane on the runway, where we’re worried that the plane would crash short of the runway. We’ve got a very strong economy, and we’re worried that the plane will overshoot the runway.”

The one-time Harvard University president and noted academic cautioned that the fight against inflation, which has surged over the last two years, may have a way to go.

“I find the declarations of victory by some to be substantially premature,” Summers said. “And I find the idea that this vindicates the view of those who have been unconcerned about inflation all along to be a bit bizarre, since what we followed was very different policies than the ones that they have been pushing.”

Summers stressed the importance of keeping a close eye on wage and productivity growth as the Federal Reserve and others track the underlying inflation rate. He said that the present wage inflation could indicate an underlying inflation rate in the 3.5% range, and may not be slowing down. “Part of the issue is that [the rate] is 4.4 year-over-year, but it’s 4.9% quarter-over-quarter. And it’s probably closer to 5% month-over-month,” said Summers.

In other words, said Summers, the U.S. economy is not yet out of the woods: “What we know is that if we don’t contain inflation, it sets the stage for all sorts of very serious problems elsewhere.”