Former Treasury Secretary Lawrence Summers said Federal Reserve officials need to stay the course to quell inflation that’s proving persistent at a four-decade high.
“We do need strong action from our central bank,” he said on CNN’s “Fareed Zakaria GPS” on Sunday.
While Summers said he’s “encouraged” by the Fed’s commitment to bring down inflation, he cast doubt on the likelihood of a soft landing for the US economy, saying it’s “very unlikely.”
Fed Chairman Jerome Powell and his colleagues are expected to approve another 75 basis-point hike this week after raising rates in June by the most since 1994. They are also expected to signal their intention to keep moving higher in the months ahead.
Powell has said that failing to restore price stability would be a “bigger mistake” than pushing the US into a recession, which he had continued to maintain the Federal Open Market Committee can avoid.
“There’s a very high likelihood of recession when we’ve been in this kind of situation before,” said Summers, a Harvard University professor and paid contributor to Bloomberg Television. “Recession has essentially always followed when inflation has been high and our employment has been low.”
The consumer price index rose 9.1% in June from a year earlier. Three-quarters of the goods and services in the CPI basket increased at an annualized rate of more than 4% in June from May.
The U.S. government can also do more to get inflation under control, Summers said, renewing his argument for Congress to raise taxes.
Potential government measures include taking tariffs on imports off, lowering pharmaceutical prices, improving energy policies and lowering the budget deficit, he said.
“There’s a lot we can do to contain or control inflation,” he said. “But if we continue with the kind of ostrich policies we had in 2021, there’s going to be much, much more pain later.”
