Obama’s Top Economist Issues a Warning About a Crash

Katie Pavlich | March 17, 2022 3:05 PM

President Barack Obama's former economic advisor Larry Summers is issuing a stark warning about the future of America's economy.

In a new op-ed for The Washington Post, Summers warns stagflation and a recession are on the way if the Federal Reserve doesn't engage in a harsh pivot on current policy.

"The hope is that the Fed can engineer the proverbial soft landing, whereby inflation returns to around its 2 percent goal and the economy remains strong without a substantial increase in unemployment. Judging by their statements to date, Powell and his colleagues seem to believe they have a good chance of success," he writes.

In this new analysis, @LHSummers and I examine the plausibility of the Fed engineering a soft landing.

We find that, given current inflation of nearly 8% and unemployment below 4%, historical evidence suggests a very substantial likelihood of recession over the next 1-2 years. https://t.co/DMUtcu5tIl
— Alex Domash (@asdomash) March 16, 2022

"Anything is possible, and wishful thinking can sometimes prove self-fulfilling. But I believe the Fed has not internalized the magnitude of its errors over the past year, is operating with an inappropriate and dangerous framework, and needs to take far stronger action to support price stability than appears likely. The Fed’s current policy trajectory is likely to lead to stagflation, with average unemployment and inflation both averaging over 5 percent over the next few years — and ultimately to a major recession," he continues.

To avoid stagflation and the associated loss of public confidence in our country now, the @federalreserve has to do more than merely to adjust its policy dials — it will have to head in a dramatically different direction.

My @PostOpinions column:https://t.co/sTHR3Ieqzl
— Lawrence H. Summers (@LHSummers) March 16, 2022