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Top Obama Economist: ‘Quite Unlikely That Inflation Will Recede Back To Its Normal’ Rate

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WASHINGTON, DC - NOVEMBER 06: U.S. President Joe Biden speaks during a press conference in the State Dinning Room at the White House on November 6, 2021 in Washington, DC. The President is speaking after his Infrastructure bill was finally passed in the House of Representatives after negotiations with lawmakers on Capitol Hill went late into the night.
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Larry Summers, who served as Treasury Secretary under former President Bill Clinton and director of the National Economic Council under former President Barack Obama, warned during a CNN interview late last week that it was unlikely that inflation rates would return to normal any time in the near future.

“Given that you were worried about this before almost anybody else, and given that now you have got all these CEOs saying it’s going to go a year, maybe even past that, right, at that point, it wouldn’t be transitory,” CNN host Erin Burnett said. “How long do you think inflation is going to go up?”

“I think the odds are that we’re going to have inflation of a kind we haven’t seen in 30 years, until either the Fed takes some significant move with respect to monetary policy, or until there’s some kind of accident that disrupts the economic growth we’re enjoying,” Summers responded. “I think it’s possible but quite unlikely that inflation will recede back to its normal 2 percent level without some significant change in the path we’re now — we’re now on. I think the Fed has made a significant mistake in the approach that it’s taking by doubling down on the massive fiscal stimulus we had at the beginning of the year with really easy monetary policy.”

WATCH:

TRANSCRIPT PROVIDED VIA CNN:

BURENTT: OUTFRONT now, Larry Summers, who was treasury secretary for former-President Bill Clinton and director of the National Economic Council under President Obama. And, of course, secretary, you have been warning for months about the threat of inflation. In fact, since the very beginning of this year, when the administration said that — that — that that was, you know, crazy talk. And you ended up being right.

So, you hear all these CEOs and, Larry, you hear them. I mean, you know, I played three. You know, as you know, I could give you 30, right? Given that you were worried about this before almost anybody else, and given that now you have got all these CEOs saying it’s going to go a year, maybe even past that, right, at that point, it wouldn’t be transitory. How long do you think inflation is going to go up?

LARRY SUMMERS, FORMER DIRECTOR, NATIONAL ECONOMIC COUNCIL UNDER PRESIDENT OBAMA: I think the odds are that we’re going to have inflation of a kind we haven’t seen in 30 years, until either the Fed takes some significant move with respect to monetary policy, or until there’s some kind of accident that disrupts the economic growth we’re enjoying.

I think it’s possible but quite unlikely that inflation will recede back to its normal 2 percent level without some significant change in the path we’re now — we’re now on. I think the Fed has made a significant mistake in the approach that it’s taking by doubling down on the massive fiscal stimulus we had at the beginning of the year with really easy monetary policy.

BURNETT: And — and — you know, obviously, they haven’t indicated to your point that they are going to — that they see any mistake that they made. But if they were to turn around now and say, actually, wait. Sorry, we’re going to start increasing interest rates. Would it be too little, too late?

SUMMERS: I think if they started by saying that they were going to stop immediately buying mortgages in the midst of a major housing bubble, that would be helpful. I think if they said they were going to stop growing their balance sheet and not reduce their balance sheet but just stop the process of growing it — if they were going to get that done in three months, rather than in eight, that would be helpful. If they signaled that they were on hold towards the possibility of raising rates and that they saw the major problem as being overheating, I think that would be helpful.

BURNETT: And — and let’s just be clear. You use the words housing bubble. You think that’s fair now?

SUMMERS: Yeah. House prices have, in the last 12 months, risen faster than in any single year since they started collecting — collecting the data.

BURNETT: Yeah.

SUMMERS: (AUDIO GAP) wrong word. Maybe surge is the right word. But we’ve clearly got a major thing going on in the housing market that hasn’t, yet, been much reflected in the consumer price indices. But it will be.

BURNETT: And — and — and yet, at the same time, and I know you are talking about the combination of both the easy monetary policy, incredibly easy monetary policy, also, fiscal stimulus. You know, look, there’s been a lot of money going out on the fiscal side to Americans, right? At first, to — to say don’t go to work because of the coronavirus. And a lot of those payments have continued, right, and credits.

What that is is resulting in is, you know, people wanting to be paid more to go back to work. Okay. That makes sense. And you are seeing it. 4.4 million Americans quit their jobs in September. That is a record number. It is a record number for the second month running.

There are more than 10 million open jobs in the United States right now. That could be a huge problem for an economy trying to really, really take off. What — what do you think is going on here, given the strong wage growth we are seeing?

SUMMERS: I think we’ve got a tight labor market, not a loose labor market. 4.7 percent unemployment’s actually pretty low by broad historical standards. And as you just said, Erin, the vacancy and the quit rates are unprecedently high.

So we got to recognize our problem is not that not enough people have jobs. That is not the current problem. The current problem is that we are pushing demand into the economy faster than supply can grow and that we are just going to get more and more inflation until we stop doing that.

BURNETT: All right.

SUMMERS: That’s the real — that’s the real problem.

BURNETT: Yeah. Well, it’s a — it’s a pretty terrifying problem. It is a big problem.

All right. I appreciate your time, Secretary. Thank you very much. Always good to talk to you.

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