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Former treasury secretary Summers says there is a risk the Fed hit the brakes very hard - Bloomberg

Published 2023-02-17, 01:50 p/m
Updated 2023-02-17, 01:50 p/m
© Reuters.

© Reuters.

By Sam Boughedda

In an interview with Bloomberg, former U.S. Treasury Secretary Lawrence Summers said he believes that a broadening in U.S. price pressures indicates that the Federal Reserve's monetary tightening path to date is having limited impact.

Summers said this raises the danger of policymakers potentially having to do more than previously thought.

He told Bloomberg Television's "Wall Street Week" with David Westin that "the Fed's been trying to put the brakes on, and it doesn't look like the brakes are getting much traction," adding that the risk is they "hit the brakes very, very hard."

However, he also noted that it is too soon to back the Fed re-accelerating its rate hike policy to a 50 basis-point move in March.

The former Treasury Secretary believes there is still the possibility that the economy suddenly halts when companies have to negotiate a build-up of inventories and headcount on their payrolls, alongside a depletion in consumer savings.

Summers suggested that the Fed has to "view the situation with a lot of humility" and should "avoid locking itself in with any kind of strong pronouncements."

Summers added that the median component of consumer prices, now climbing at a pace close to 7%, has got to cause real concern about inflation.

"It raises the possibility that we're not landing at a terminal rate sometime in the next several months — or that we're going to have to go back to hitting the brakes harder by more than 25 basis points," Summers said to Bloomberg.

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