By Tim Cook
Former Secretary of the Treasury Lawrence H. Summers warned on March 2 that mismanagement of policy by the Federal Reserve could cause the next recession in the U.S. economy.
Summers said that though the Fed plans to raise its interest rates, the proposed increases will not be enough to successfully mitigate the inflation crisis in which the country finds itself. He said that only through a strong and immediate response can the inflation rate be contained without an economic disaster.
Summers dismissed the idea that the U.S. should mimic Deutsche Bank’s proposal to intervene in markets to bolster the euro, decrying the track record in the U.S. and other countries with currency intervention.
Summers’s remarks are in line with his comments to The Harvard Gazette on Feb. 4 when he said the current rate of inflation would not have risen so high had the government not issued stimulus programs in 2021 when the economy was beginning to recover. Because the stimulus was injected into an already growing economy, the move led to a sharp increase in consumer demand, raising inflation, Summers explained.
Though Summers acknowledged that recovery is in store soon, he cautioned that “…at least some economic slowdown…” may be what it takes to curb inflation.
The Federal Reserve itself expects inflation to begin to fall. Federal Reserve Chairman Jerome Powell announced on March 2 that the Fed plans to raise interest rates by more than 25 basis points, or 0.25%, five times over an extended period to combat inflation.
With consumer prices already up 7.5% from January 2021, the effect of the ongoing Russo-Ukrainian War may hamper the Fed’s plans.
Most notably for the American consumer, the war is driving oil prices to their highest levels in 11 years. This compounds already-high gas prices and an inflation rate well over the Fed’s 2% target.