Summers Says Rising Yields Mean Investors Sensing Inflation Risk

(Bloomberg) -- Former U.S. Treasury Secretary Lawrence Summers said investors may be tuning into the risk of an overheating U.S. economy and the chance that pushes the Federal Reserve into a faster withdrawal of monetary policy stimulus.

At the end of a week in which U.S. Treasury yields surged toward the highest levels since early 2021, Summers said that markets may be showing “recognition” that inflation won’t ease and that the Fed will have to do more to control it.

“Markets are substantially underestimating what’s likely to happen to interest rates before too long,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin. “We just seem to be having a lot of surprising bad shocks that are lasting longer than you think. When you keep getting surprised again and again it suggests there is a pattern and you’re missing it.”

Summers said that the parallels he’s been drawing with the inflation of the late 1960s and 1970s now “look more real” and that he continues to have “pretty substantial concern” about the U.S. economy overheating.

The former Treasury chief, a paid contributor to Bloomberg, also accused U.S. lawmakers of “playing chicken” by not raising the federal debt limit even though Treasury Secretary Janet Yellen has warned the government risks running out of money by Oct. 18. He noted that signs of stress are already visible in the Treasuries maturing around that time.

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