Summers Signals Inflation Now ‘Entrenching’ as Demand Runs Hot
(Bloomberg) -- Former U.S. Treasury Secretary Lawrence Summers suggested that outsize price gains are now becoming enduring as the U.S. economy suffers its fastest inflation since 1990.
“The major economic concern of the United States today is overheating,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin. “It is hard to not have considerable concern that an inflation is entrenching.”
Labor shortages, tightening housing markets, rising commodity costs and mounting inflation expectations all point to enduring price pressures in the economy, he said after a report this week showed that consumer prices jumped 6.2% in October from the previous year.
While some have argued the price shock will ebb once post-lockdown supply shortages and a dearth of workers ease, Summers said that strong demand for goods was still responsible for driving much of the inflation -- something he said the Federal Reserve needed to acknowledge.
“The idea of monetary policy is to regulate things so the economy is in balance and you’re able to avoid inflation,” he said. “There’s an enormous number of thoughtful and sincere people at the Fed -- but it doesn’t seem to me that they’re balancing risks.”
Summers, a professor at Harvard University and paid contributor to Bloomberg, said those who hadn’t anticipated the surge in inflation that he has long warned about made two errors.
Firstly, there was a failure to recognize earlier in the year that there was a range of possible outcomes, he said. Secondly, policy makers were so keen for their stimulus program to work without provoking inflation that they didn’t accept the risk involved. The Biden administration pushed a $1.9 trillion pandemic-relief bill through Congress in March.
“Something we need to do is be much more attentive to the fact the world is as it is -- not always as we prefer it to be,” he said.
He credited his own forecasting success to applying a “fairly basic economic model to the magnitude of the demand stimulus,” which meant inflation was a risk even before unpredictable supply-side strains materialized.
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