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March 29, 2022

Former Obama Economic Advisor Larry Summers: We're Heading for 1970s Stagflation and a Major Recession

Via John Sexton at Hot Air, something else his coblogger AllahPundit will soon be blaming on Donald Trump.

Last week, Summers wrote in the Jeff Bezos Corporate Newsletter that the Fed's 0.25% hike in the fed funds interest rate was wholly inadequate given the crisis they (and Biden) had created:

Anything is possible, and wishful thinking can sometimes prove self-fulfilling. But I believe the Fed has not internalized the magnitude of its errors over the past year, is operating with an inappropriate and dangerous framework, and needs to take far stronger action to support price stability than appears likely. The Fed's current policy trajectory is likely to lead to stagflation, with average unemployment and inflation both averaging over 5 percent over the next few years -- and ultimately to a major recession.

He elaborated in an interview published in the New York Times:

I'm probably as apprehensive about the prospects for a soft landing of the U.S. economy as I have been any time in the last year. Probably actually a bit more apprehensive. In a way, the situation continues to resemble the 1970s, Ezra. In the late '60s and in the early '70s, we made mistakes of excessive demand expansion that created an inflationary environment...

And so now I think we've got a real problem of high underlying inflation that I don't think will come down to anything like acceptable levels of its own accord. And so very difficult dilemmas as to whether to accept economic restraint or to live with high and quite possibly accelerating inflation. So I don't envy the tasks that the Fed has before it.

More of his thoughts at the link.


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posted by Ace at 05:00 PM

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