Former U.S. Treasury Secretary Lawrence Summers said the Federal Reserve may need to raise interest rates more times because of persistent inflationary pressures, while warning that the U.S. economy is still under pressure from tightening policies that appear to have limited impact for now. may still faceavalanchedownside risk.
Summers said on Bloomberg’s Wall Street Week on Friday (2nd) that there is still a long way to go to get inflation back to the Fed’s target, and that Fed officials may need to raise interest rates higher than the market expects. higher.
Interest rate futures show that traders expect the Fed to raise interest rates to about 5% by May next year, while the current interest rate is in the range of 3.75% to 4%. In addition, economists expect the December meeting to raise interest rates by 2 yards.
Referring to terminal rates, Summers said: “We can certainly put 6% into the scenario, which tells me that 5% is not a best guess.”
Summers’ comments came after the US reported that average hourly earnings unexpectedly rose in November. He believes the best single gauge of core underlying inflation is wages, and last month’s data showed strong price pressures remain in the economy. “My sense is that inflation is going to be a little bit longer than people expect.”
The average hourly salary in the United States increased by 0.6% in November, higher than market expectations, and the increase was the largest since January. The wages of production and non-management personnel increased by 0.7%, the highest level in nearly a year.
While many indicators point to the limited impact of the Fed’s tightening efforts so far, Summers warned that changes often come unexpectedly.
“All the mechanisms are at work, and at some point, consumers will spend their savings, and then you’ll have a moment like Wile E. Coyote falling off a cliff,” he said.
Turning to the real estate market, he said when prices start to fall, there is often a flood of sellers who come into the market to sell properties and at some point you see credit dry up and repayment problems erupt.
“Once you get into a negative situation, there will beavalanchetype of situation. I think we do have a risk of that happening at some point, I don’t know when it will come, but when it happens, I think the impact will be powerful. “
Summers also warned that this is a recession with relatively high interest rates, not the low-rate recessions seen in the past. He stressed that the Fed should not raise its inflation target from 2% to 3%, in part because of possible credit problems after allowing inflation to rise to such high levels over the past two years.
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