FWR’s US correspondent, Charles Paikert, is in Chicago to report on the Morningstar conference there and has been hearing former US Treasury Secretary, Lawrence Summers, talk about the economy.
Inflation is unlikely to dip to the 2 per cent target set by the Federal Reserve Board anytime soon, according to former US Treasury secretary Larry Summers.
Speaking at the annual Morningstar Investment conference Wednesday, Summers also urged attending financial professionals to be “careful” before advising clients to invest in the equity markets in the coming months, citing what he described as Wall Street’s failure to take an impending recession into account for earnings’ forecasts.
Summers, who was director of the National Economic Council and chief economist at the World Bank, said he was “not that optimistic” that inflation would slow to 2 per cent this year, “unless the economy slows down fairly substantially.” He expects wage inflation and a continuing tight labor market to keep inflation at around 4.5 per cent to 5 per cent.
While Summers believed that a recession is likely, he did not think it would be as severe as the downturns of 2008 and 2021. He was, however, skeptical that there would be a “soft landing,” likening that expectation to Samuel Johnson’s quip about a second marriage being: “the triumph of hope over experience.”
Fed critic
Summers said he expects the Fed to raise interest rates by 25 basis points next month and continued his sharp critique of the Board. He became one of the Fed’s most prominent critics last year claiming it was not being vigilant enough on fighting inflation. At Morningstar, he took aim again, calling the Fed “not highly credible because of how far behind the curve they got.”
The Fed is too prone to “group think” and needs to listen to more dissenting input, according to Summers. Moreover, he felt that setting specific inflation targets was a mistake because “your credibility becomes invested in it.”
Summers conceded that the Fed has a “very, very difficult problem” when it comes to tempering inflation, comparing the challenge to turning on the faucet in an old hotel and encountering a lag between the desired temperature of the water and what comes out first.
Bullish on US economy
The former president of Harvard College, who remains a professor there, was bullish on the long-term prospects of the US economy, however. After traveling all over the world for the past year, his tongue-in-cheek assessment included describing Europe as a museum, Japan as a nursing home, China as a jail and bitcoin as an experiment.
The collective value of US companies was at their highest value ever, Summers noted. “I would rather be playing America’s hand,” he said, “than the hand of any other major country in the world.”
Nor did Summers seem particularly worried about the looming debt ceiling crisis, the wobbly real estate market or the country’s regional banking difficulties. The odds of a “technical default” brought on by failure to pay down the debt were only 2 per cent to 3 per cent, he said.
Short on Trump, long on Biden
No stranger to the political arena, Summers predicted that former US president Donald Trump would fade from relevance in the same manner as controversial Senator Joe McCarthy did in the 1950s, despite both men commanding the allegiance of a number of hardcore loyalists.
Acknowledging his bias as a Democrat, Summers praised President Joe Biden. Summers said he has met Biden in the past few months and worked closely with his aides. Biden, he said, was more “diligent and focused on his job than many in this room.”
Original Link: https://www.familywealthreport.com/article.php?id=197800#.ZFHdxHZBzIV
