Summers Sees Recession Chance Up to 40% as Soft Landing Elusive
Summers Sees Recession Chance Up to 40% as Soft Landing Elusive
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Former U.S. Treasury Secretary Larry Summers said inflation has become entrenched, lowering the probability that the Federal Reserve will be able to tame price increases without causing a recession.
Summers now sees 30% to 40% chances for a recession over the next 24 months. The Harvard University economist also estimates that the odds of a so-called soft landing, in which tighter monetary policy doesn’t sharply constrict economic growth, at 20% to 25%.
“The evidence is that engineering a soft landing is a very difficult thing to do in a rapidly growing, inflation economy,” Summers said at the Wall Street Journal’s CEO Council Summit on Tuesday.
Summers, 67, said the U.S. is now contending with the worst labor shortage he’s seen in his lifetime. The issue of the moment is labor unions now adding inflation compensation into contracts. Treasury Secretary Janet Yellen, for her part, has repeatedly said she doesn’t see signs of any wage-price spiral.
Summers, a paid contributor to Bloomberg, said that -- after the current bout with inflation -- there’s a better-than 50-50 chance of returning to the secular-stagnation conditions that preceded the pandemic. A reversion to previous trends -- with insufficent demand and a surfeit of savings -- is uncertain, because policies have shifted substantially during the pandemic.
As a historical analogy, Summers flagged the mid-20th century example of wartime production ending the secular stagnation of 1930s. The post-World War II era then saw a surge in fertility and suburbanization that “nobody” foresaw.
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