Inflation Will Get Worse, Larry Summers Warns

Former Treasury Secretary Larry Summers speaks
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News & Politics
Damir Mujezinovic

Prices of various goods and services in the United States have increased dramatically due to inflation being higher than it's been in four decades.

Per the Labor Department, the consumer price index rose 7.9 percent in February from the previous year, in what was the fastest increase since 1982.

But that was before the Russian invasion of Ukraine, and before the U.S. and its allies came together to impose economic sanctions on Vladimir Putin.

The situation will not improve anytime soon, according to former Treasury Secretary Larry Summers.

It Will Get Worse, Summers Says

Speaking at the Economic Club of New York, Summers said the inflation problem will get a lot worse before it gets any better.

"I think the inflation outlook is pretty grim. And I think the Fed is a fair amount behind the curve," he stated, as reported by Fox Business.

Summers -- who served in Bill Clinton and Barack Obama's administrations -- repeatedly warned in 2021 that inflation could get out of control, but his warnings apparently fell on deaf ears.

The Biden administration now has a serious political problem, it seems.


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Can Fed Stop Inflation?

Federal Reserve building
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Federal Reserve Chairman Jerome Powell conceded this week that inflation is "much too high" and said the fed would be raising the federal funds rate by more than 25 basis points in an effort to avert recession.

According to Summers, this policy is unlikely to succeed.

"The probability that the Fed achieves the sort of soft landing that it forecast last week, with unemployment at 3.5 percent for the next three years and inflation falling close to 2 percent, I think that's way, way odds off," he said.

Is Summers Wrong?

Former Treasury Secretary Larry Summers delivers a speech

Powell insisted this week that the fed will be able to strike a balance between controlling inflation and wrecking the economy, mostly because the labor market is strong and the U.S. is slowly recovering from the turbulence caused by COVID-19.

Nonetheless, even Powell admitted that it will not be easy for the central bank to navigate in this climate, saying that the Russian invasion of Ukraine is creating more complications.

"No one expects that bringing about a soft landing will be straightforward in the current context," he said.

Who Is To Blame For Inflation?

Polling suggests most Americans blame President Joe Biden's economic policies for inflation.

In an ABC News/Ipsos survey released last week, 70 percent said they disapprove of the president's handling of inflation, while 58 percent said they disapprove of his economic policies.

Additionally, 70 percent said they disapprove of Biden's handling of gas prices, even though the vast majority support the ban he has imposed on Russian energy imports.