Democrat economist Larry Summers, who repeatedly warned President Joe Biden in 2021 that his reckless government spending would lead to a serious inflation crisis, warned again this week that things have not improved and inflation is running much higher than the official government numbers state.
Summers’ warning comes after Biden’s economy took a gut punch on Wednesday when a hotter-than-expected inflation report was released, showing a 3.5% increase over the last 12 months — the highest year-over-year increase since last September.
According to the latest Consumer Price Index data — which was released by the Bureau of Labor Statistics — key drivers of the higher rates include car insurance, groceries, electricity, and gas. New parents and pet owners are feeling the pinch as well, with baby food now up over 30% since 2021 and pet food up 23.7%.
The higher-than-expected inflation numbers come just a day after Treasury Secretary Janet Yellen claimed that overall household finances were “quite strong” — and may put a sizable kink in any plans to begin bringing interest rates back down.
“I was not hugely surprised by the numbers,” Summers said when asked during a Bloomberg News interview on Wednesday what he thought about the latest inflation numbers. “In an economy that’s growing faster than potential, with an unemployment rate that has a three handle in the presence of massive and growing budget deficits and epically easy financial conditions, the idea that inflation would remain robust, or even accelerate, should not be a surprise to anyone.”
Summers said that inflation is actually running higher than the 3.5% number that the Biden administration released.
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“It was not me or some outside observer who emphasized the concept of super core inflation — that is taking out the transitory stuff and also taking out housing — and by that measure, inflation is running at above a 6% rate,” he said. “And the three month rate exceeds the six month rate and the six month rate exceeds the one year rate.”
Summers warned that interest rates are likely to climb even higher now — making it harder for Americans to buy homes and cars — and that “markets could crash.”
“This confirms the idea that the neutral rate is way above the 2.6% level that the Fed has been using as a North Star,” Summers said. “In my view puts back on the table, it is still not what I would expect, but you have to take seriously the possibility that the next rate move will be upwards rather than downwards. And anything could happen, markets could crash, the indicators could turn down. But on current facts, a rate cut in June, it seems to me would be a dangerous and egregious error comparable to the errors the Fed was making in the summer of 2021 when it just didn’t get the threat on inflation.”
WATCH:
.@lhsummers, former US Treasury Secretary and Wall Street Week contributor, says he’s not surprised inflation rose again in March, but he says an interest rate cut in June by the Federal Reserve would be dangerous https://t.co/VVbO71W83N pic.twitter.com/enjnKsEm5Z
— Bloomberg TV (@BloombergTV) April 10, 2024
Summers warned last year that the trend for inflation rates under Biden closely match the inflation rates during President Jimmy Carter’s administration and that America may not have seen the worst of inflation yet.
“It is sobering to recall that the shape of the past decade’s inflation curve almost perfectly shadows its path from 1966 to 1976 before it accelerated in the late 1970s,” Summers wrote in a post on X that included a graph showing how inflation under Biden has mirrored inflation under Carter.
It is sobering to recall that the shape of the past decade’s inflation curve almost perfectly shadows its path from 1966 to 1976 before it accelerated in the late 1970s. https://t.co/UpEk7x6FQt pic.twitter.com/q9PwBRKzxN
— Lawrence H. Summers (@LHSummers) August 25, 2023
Virginia Kruta contributed to this report.