During an interview aired on Friday’s edition of Bloomberg’s “Wall Street Week,” Harvard Professor, economist, Director of the National Economic Council under President Barack Obama, and Treasury Secretary under President Bill Clinton Larry Summers argued that “we don’t have a lot of evidence of a basic downwards trend in inflation” and the Federal Reserve “has considerably more work to do.” And that there’s a likelihood the terminal rate will need to be near 6%.
Summers stated, “I think more broadly, it seems to me that we don’t have a lot of evidence of a basic downwards trend in inflation. It looks to me more like the inflation story is fluctuation around an underlying inflation rate of 4.5 or 5. And if that’s close to right, it suggests that the Fed has considerably more work to do.”
He added, “I suspect that there’s a quite good chance that we’re going to need to get to a terminal rate near 6. After all, we have inflation running at close to 5% and we have interest rates at about 5%. And so, interest rates and inflation in the same range doesn’t point to a lot of pressure to bring inflation down. So, I’m very much open to changing my mind and I think confident pronouncements about these things are a mistake.”
Follow Ian Hanchett on Twitter @IanHanchett