Larry Summers says the increase in the Fed’s preferred inflation target is ‘very worrying’ as it warns of a likely recession

  • Former Treasury Secretary Larry Summers says the increase in the Fed’s preferred inflation target is “very worrying.”
  • PCE inflation accelerated in January, while consumer spending also rose.
  • Summers says he would now be surprised if the Fed avoided a recession by lowering inflation.

Former US Treasury Secretary Larry Summers described the recent rise in the Federal Reserve’s inflation index as “very worrying” as he renewed his message of a likely recession.

Data released on Friday showed that the Personal Consumption Price Index (PCE) rose 5.4% in January, up from 5.3% in December, signaling a clear resurgence in price pressures.

Consumer spending has also risen, suggesting that the Fed’s aggressive interest rate hike over the past year has yet to cool demand properly. Summers was ominous in his response to the numbers.

“They suggest that @FederalReserve may have made much less progress in containing core inflation than commonly thought and make a soft landing less likely,” Summers said. tweeted on saturday with reference to data.

Summers added that he would now be very surprised if the US could avoid a recession while lowering inflation, citing inventories, high employment relative to output and depletion of savings as reasons why the economy could get into a slump. he called the air pocket.

“There is no real historical precedent for the idea of ​​managed disinflation from current levels without a recession,” he said.

Earlier in February, Summers was partial to the idea that the Fed could make a soft landing by lowering inflation without triggering a recession by raising interest rates, though he warned that there were risks.

But growing signs that inflation could be sticky have forced him back into a more bearish stance. Summers warned last week that markets expect an “economic collision” as the central bank tries to ease price pressures even further.

“The Fed is trying to slow down and it doesn’t look like the brakes are picking up,” Summers said.

Analysts, economists and policy makers at the Fed are increasingly betting that the Fed will have to raise interest rates by 25 basis points at least twice more this year, with a third hike out of the question.

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