Paul Krugman says he agrees with Larry Summers that the Fed needs to walk a fine line to prevent widespread economic damage to the US.

  • Dove economist Paul Krugman agrees with hawk Larry Summers on the Fed’s way forward.
  • Summers told Bloomberg TV on Friday that the Fed faces symmetrical risks by raising rates too quickly or too slowly.
  • “It really bothers me that I’m saying this, but I think I agree with Larry,” Krugman said in an interview with Bloomberg TV on Monday.

This time Larry Summers and Paul Krugman are on the same wavelength.

At least for now, economists agree that the Fed is walking a fine line, where the risk of raising rates too high equals the risk of not raising rates enough.

AT Bloomberg TV interview on Monday, inflation dove Krugman agreed with his more hawkish counterpart’s earlier statement.

On Friday, Summers told Bloomberg TV that the Fed needs to keep its finger on the pulse and on gas at the same time to navigate “an economy where things can go either way,” comparing it to driving a car “on a very, very, very foggy night.”

When asked about it on Monday, Krugman replied: “It really bothers me that I’m saying this, but I think I agree with Larry.”

He elaborated by offering his own metaphor to explain how the Fed is trying to balance seemingly equal risks: “We’re trying to manage some pretty sensitive mechanisms, in the dark, with gloves on.”

Krugman added that “we don’t have a very good idea of ​​what’s going on” or “fine motor skills to control important things.”

Previously, both economists were on opposite sides. Summers, the former treasury secretary, was one of the first to warn that the Fed was not doing enough as inflation soared and continued to beat the drum that policymakers needed for more aggressive rates.

On the other hand, Krugman warned that the Fed risks going too far in its fight against inflation, causing unnecessary economic damage.

But while he believes the central bank is bound to overdo it, he said that the market’s reluctance to believe the Fed will keep raising actually reduces some of the potential adverse effects.

“It turns out that the markets are basically fighting the Fed, so the Fed policy is not as much of a deterrent as you might fear,” Krugman said.

Of course, the Fed will get it wrong one way or another, although the consequences will not be as severe, he said, adding that he is “quite optimistic that we expect some sort of disruption, not a coming crisis.”

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