Two former top economic officials for former President Barack Obama are warning that President Joe Biden’s massive social spending bill, known as the Build Back Better Act, will increase inflation at a time when rates are already skyrocketing and will add hundreds of billions of dollars a year to the national debt.
Larry Summers, former Treasury Secretary for Clinton and Obama administration official, and Steven Rattner, Obama’s former auto czar, made the warnings in an interview last week with Bloomberg News.
When asked during the interview if Biden’s multi-trillion-dollar leftist spending bill would worsen inflation, Summers responded, “I think the inflation rate would be slightly higher in 2022 and 2023 with the Build Back Better than it would be without the Build Back Better.”
Obama and Clinton economist Larry Summers: Prices will be "higher in 2022 and 2023 with [Biden's] Build Back Better.” pic.twitter.com/golNm5m7ls
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Summers said that the latest Consumer Price Index (CPI), which was 6.8%, “confirmed” that the inflation that has erupted under Biden is “not transitory,” like the administration has tried to claim.
“And I think everybody recognizes now with the statements from Chairman Powell, with the statements from Secretary Yellen, that this isn’t going to just go away of its own accord,” Summers warned. “That the Fed’s going to have to take substantial action to control inflation … we put in motion for the first time in 40 years, excessive inflation, caused by overheating of the economy, and that’s going to have to be worked out of the system and that’s probably not going to be such an easy thing.”
Rattner weighed in saying that he “completely agree[d]” with Summers’ analysis of the problem and that ” it’s going to take multiple years certainly to work it out.”
“So it is going to be painful. And it’s going to be painful for growth,” Rattner said. “It’s going to be painful for jobs. And we do have an election coming next year which is going to be complicated.”
Summers warned that “we’re going to entrench inflation way above 2%, perhaps in the four percent or even higher range, unless something happens to break the current mood; to break the current trend.”
“And I don’t think it’s going to be three rate increases or two rate increases next year,” Summers said. “I mean, remember this crucially: monetary policy today is far looser than it was a year ago. Looser is measured by real interest rates; Looser is measured by financial conditions; looser as measured by the size of the Federal Reserve’s balance sheet. So we’ve got looser monetary policy even as job vacancies are way up and even as inflation is way up as well.”
Rattner agreed that if the Fed was serious about getting inflation under control that it was “going to take a lot more than three rate hikes over some period of time.”
Rattner warned that Biden’s Build Back Better Act “would add $150 to $200 billion a year to the deficit,” which he noted was a problem because, as another Obama economist, Jason Furman, pointed out, “you’ve got over two trillion dollars of dry powder on the sidelines, you know, savings that people have above what would normally be expected and that’s what’s coming back into the into the economy now and that’s what’s really creating this [inflation] and that’s still a lot of money left to left to come swirling around this economy.”