On Monday, Larry Summers, a former top economic adviser to President Barack Obama, pushed back on remarks that Treasury Secretary Janet Yellen made on Sunday where she dismissed Summers’ concerns over inflation.
Yellen, appearing on CNN’s “State of the Union” with host Jake Tapper, was asked to respond to these recent remarks from Summers:
Now we see inflation becoming more widespread in a wider range of products, spreading to the housing and labor markets. I have been alarmed for a long time, and I’m more alarmed now. … We’re in more danger than we have been during my career of losing control of inflation in the U.S.
When Tapper asked Yellen if she thought that Summers was wrong, Yellen responded, “I think he’s wrong, I don’t think we’re about to lose control of inflation.”
“I agree, of course, we are going through a period of inflation that’s higher than Americans have seen in a long time,” she added. “And it’s something that’s obviously a concern and worrying them. But we haven’t lost control.”
Summers responded to Yellen in a series of tweets on Monday afternoon, saying, “She expresses confidence that inflation is decelerating and will be back to target levels by the end of next year. I hope she is right but I think it’s much less than a 50/50 chance.”
“I began my career when Paul Volker was taking over at the Fed and not since then have I been more worried. I am curious at what point in the last 40 years Treasury thinks the risk of an inflation spiral are greater than they are now,” Summers said. “When the Administration formulated its budget in February, it expected 2 percent inflation in 2021, I was warning about inflation. Their forecast is no longer operative. In May and June, @SecYellen expressed confidence that inflation would be back to the 2 percent range by late 2021 or early 2022. Now, this forecast is no longer operative.”
“In @CNN interview, @SecYellen asserts twice that inflation has decelerated. This is a bit misleading as the 3-month and 12-month CPI inflation rates are both around 5 percent on an annual basis,” Summers continued. “And the trimmed mean and median inflation rates that exclude aberrant sectors (which used to be a stable of Administration’s rhetoric) are now accelerating. The TIPS market is suggesting inflation in 3 percent range over 5 years and more next year. Breakeven inflation over 5 years is up 40 bps in the last month. Expectations data are even more disturbing. This is part of why my alarm is increasing and Treasury should be as well.”
“Given lags in the indices, housing inflation is almost certain to soar in coming months. With super-tight labor markets, rising strike activity and real wages having declined, increases in wage inflation are likely as well,” Summers continued. “I actually believe the gap between Treasury & Fed statements and the everyday experience of businesses and consumers in terms of inflation has widened in recent months. Until the Fed & Treasury fully recognize the inflation reality, they are unlikely to deal with it successfully.”