Larry Summers warns that the 'war' vs inflation might not be over

Larry Summers [link], the former US Treasury Secretary (under President Bill Clinton) and former Chief Economist of the World Bank, said that the US Federal Reserve may still need to raise rates before it can declare victory in the war against inflation. In statements to Bloomberg, he said: “People are a little bit in too much of a hurry to declare that we’ve done all the monetary policy that we need to do.” Referring to the big rallies in stocks and US Treasuries, Mr. Summers continued: “It makes me not as certain as many people that the job of containing inflation is over and that the war is done.” Mr. Summers also criticized the management of the country’s debts, and shared concerns that the labor market is perhaps too hot to be “consistent with sustainable inflation at 2%.”

MB bottom-line: Mr. Summers is a controversial figure for people my age who went through the 2008 financial crisis [Wikipedia talks about it here], but it’s important to note voices like his – especially when they get some traction. Jun Neri, the Lead Economist of BPI [BPI 116.70, up 1.5%] quote tweeted the Summers interview with Bloomberg and said, “Looks like even our conservative central scenario of three 25 bps FOMC cuts in 2H2024 is still at risk.” This doesn’t mean that Mr. Neri necessarily agrees with Mr. Summers’s warning that another hike might be coming, but it is an acknowledgment that whatever Mr. Summers is seeing to cause him to feel the way he does has (at least) the chance to delay the first cut by the US Federal Reserve. The only thing I know is that it appears as though Mr. Summers discovered a new way to hint at the same general theme: higher for longer.

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