Summers: We’re at or on the Brink of Inflation Spiral, It’s Gotten Harder to Fix While Avoiding Recession

During an interview with Bloomberg on Wednesday, economist Larry Summers said that we’re “at or over the brink of a spiral of rising inflation breaking out.” And the increase in oil prices has made it more difficult to control inflation without creating a recession.

Summers stated, “I don’t think the Fed has any alternative now but to mount a strong response to inflation, at a time when I think we are at or over the brink of a spiral of rising inflation breaking out. You’re seeing that in the numbers for expected inflation over the next year or over the next couple of years. The place you’re seeing it most clearly is in the wage data and the data on vacancies, which are pointing to wage inflation at close to 6% and pressures for that to accelerate. And I think that needs to be ringing all the alarm bells at the Fed. So, I think there’s much more risk of the Fed doing too little than there is of the Fed doing too much at a moment like this.”

He added, “I think the difficulty of getting a soft landing, where we both brought inflation down…and we avoided recession, was always very difficult. And I think with $110 oil, it is that much more difficult. And so, I think we’re going to have to — if we want to bring down inflation and we don’t have a financial accident, we’re going to need to see interest rates higher than the Fed or markets are now pricing in.”

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