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.
— Alex Domash (@asdomash) March 16, 2022
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
"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.
— Lawrence H. Summers (@LHSummers) March 16, 2022
My @PostOpinions column:https://t.co/sTHR3Ieqzl
On Wednesday the Federal Reserve announced an interest rate hike in an attempt to clamp down on inflation. It is the first increase in years.
FED DECISION: The Federal Reserve votes to raise interest rates by 0.25%, its first interest rate increase in more than 3 years. https://t.co/YKjkgqi8Ya pic.twitter.com/aWRLjLUZVR
— CNBC (@CNBC) March 16, 2022
Meanwhile President Joe Biden and House Speaker Nancy Pelosi continue to call for additional government spending, which is fueling the inflation crisis.
Pelosi on Build Back Better: "It will be non-inflationary. It will help reduce the national debt...and again goes a long way to save the planet for the children." pic.twitter.com/y7sUiLmdMw
— Townhall.com (@townhallcom) March 17, 2022