Former Treasury Secretary Larry Summers warned that the US economy is still not “out of the woods” despite recent signs of cooling inflation and stronger-than-expected economic data.
Summers urged caution last week in the wake of a blockbuster January jobs report that showed U.S. employers added 517,000 jobs in the month and the national unemployment rate fell to just 3.4 percent, the lowest since 1969. is the lowest.
“My continuing fear is … that we had a set of inflation indicators through 2022 that were very strong that have now come back down to earth, but they are still very high,” Summers told CNN on Sunday. Said during an interview with Fareed Zakaria.
“They are still unimaginably high from a two- or three-year perspective and getting the rest of the way back to target inflation may still prove quite difficult,” Summers added. said “I’m excited, but it would be a big mistake to think we’re out of the woods.”
The strong jobs report data came just days after the Federal Reserve raised its benchmark interest rate by a quarter of a percentage point as part of its continued efforts to lower rates. Meanwhile, inflation eased to 6.5 percent in December, down from a peak of 9.1 percent last June.
Fed Chair Jerome Powell noted that “inflation” is continuing – but stressed that policymakers will need more concrete evidence before they consider raising rates before meaningfully addressing inflation. will
Current Treasury Secretary Janet Yellen cited the strong labor market as a sign that the U.S. economy will avoid a recession during her appearance on ABC’s “Good Morning America” on Monday.
“You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years,” Yellen said.
Last week, President Biden cited the jobs data as a sign that his economic platform is having a positive impact.
“It’s more likely that we’ll have a softer landing than we did a few months ago,” Summers acknowledged. A “soft landing” would mean that the Fed’s campaign brought inflation back to normal levels without triggering a recession or significant job losses through rate hikes.
Experts have warned for months that the Fed’s drive to fight inflation could lead to millions of job losses as tighter credit conditions force companies to trim their bottom lines. So far, the biggest rounds of layoffs have been largely confined to the tech sector, where companies like Meta, Amazon and Microsoft have cut thousands of jobs.
Summers argued that the Fed should continue to prioritize getting inflation back to its 2% target level — even if that results in a rise in the unemployment rate.
“If we raise inflation and those expectations hold, we’re going to live with that inflation for a long time,” Summers said.
Policymakers will get an update on inflation next week, when the latest Consumer Price Index is released.
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