<mediadc-video-embed data-state="{"cms.site.owner":{"_ref":"00000161-3486-d333-a9e9-76c6fbf30000","_type":"00000161-3461-dd66-ab67-fd6b93390000"},"cms.content.publishDate":1655681305475,"cms.content.publishUser":{"_ref":"0000017f-6513-d818-adff-7f7fbe340000","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"cms.content.updateDate":1655681305475,"cms.content.updateUser":{"_ref":"0000017f-6513-d818-adff-7f7fbe340000","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"rawHtml":"
var _bp = _bp||[]; _bp.push({ "div": "Brid_55244537", "obj": {"id":"27789","width":"16","height":"9","video":"1032720"} }); ","_id":"00000181-7e4b-dd13-a9fb-7e6fc4370000","_type":"2f5a8339-a89a-3738-9cd2-3ddf0c8da574"}”>Video EmbedFormer Treasury Secretary Larry Summers reiterated his belief on Sunday that the economy will not see a reduction in inflation without a recession occurring.
Summers, who led the Treasury Department under former President Bill Clinton and served as director of the National Economic Council under former President Barack Obama, has been a thorn in the Biden administration’s side over his public warnings about the state of the economy. Top Biden administration officials spent the early months of last year disputing Summers’s claims that too much government stimulus could overheat the economy and spark an inflation crisis.
YELLEN SAYS RECESSION NOT ‘INEVITABLE,’ THOUGH INFLATION ‘UNACCEPTABLY HIGH’
The longtime Democrat predicted to NBC’s Meet the Press on Sunday that the Federal Reserve would continue to raise interest rates in order to reduce inflation. In doing so, however, the economy would “slip into a recession.”
“Look, nothing is certain, and all economic forecasts have uncertainty,” Summers cautioned. “My best guess is that a recession is ahead. I base that on the fact that we haven’t had a situation like the present with inflation above 4% and unemployment beyond 4% without a recession following within a year or two. And so I think the likelihood is that in order to do what’s necessary to stop inflation the Fed is going to raise interest rates enough that the economy will slip into a recession.”
Asked if inflation could be tamped down without triggering a recession, Summers said he did not believe there were “historical precedents for inflation at the rate we now have” to come down to the Federal Reserve’s 2% target without one, telling NBC News anchor Chuck Todd, “I think all the precedents point towards a recession.”
After again cautioning that his model could be off, the nation’s former top economist explained what indicators brought him to the conclusion that a recession is likely.
“If you look at a whole range of indicators, if you look at what’s happened in markets, if you look at the relative levels of interest rates of different durations, if you look at surveys of consumer expectations, and if you look at the simple fact that what drives inflation is supply and demand, supply doesn’t change that fast,” Summers said. “So mostly what you need to do to reduce inflation is reduce demand, and that is a very hard process to control, so it usually leads to a recession. All of that tells me that, while I wouldn’t presume to be able to judge the timing, the dominant probability would be that by the end of next year we would be seeing a recession in the American economy.”
Todd then asked Summers for his take on the Biden administration implementing a federal gas tax holiday and lifting some of the Trump-era tariffs. Summers repeated his long-standing view that President Joe Biden should lift the tariffs, but he rejected the gas tax pause outright, calling it “kind of a gimmick.”
He instead suggested that members of Congress come together in a bipartisan fashion to agree to harness the federal government’s purchasing power through Medicare to reduce pharmaceutical prices. He also said a partial, not full, repeal of the Trump-era tax cuts would “take some demand out of the economy, increase confidence, and reduce pressure on the Fed.” His third and final suggestion was an “all-in, more energy supply approach that emphasizes freeing up fossil fuels in various ways in the short run and making, with government support, the ultimate pivot to renewables.”
Inflation soared to 8.6% for the 12 months ending in May, the Bureau of Labor Statistics revealed on Friday, despite the Federal Reserve’s interest rate hikes.
Treasury Secretary Janet Yellen has repeatedly dismissed recession concerns in recent weeks, saying on Sunday that such a severe economic downturn is not “at all inevitable.”
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“I expect the economy to slow,” Yellen told ABC’s This Week. “It’s been growing at a very rapid rate as the economy, as the labor market, has recovered, and we have reached full employment. It’s natural now that we expect a transition to steady and stable growth, but I don’t think a recession is at all inevitable.”
She admitted in May of this year that she was “wrong” in her previous inflation claims, but she cited “large shocks to the economy,” including COVID-19 outbreaks and Russia’s military invasion of Ukraine.
