Larry Summers said his concerns about inflation have only grown following Friday’s jobs report showing that US companies added 528,000 people to their payrolls last month — more than double what analysts had predicted.
The former treasury secretary said that while it is good that companies are hiring more Americans, it will complicate the Federal Reserve’s efforts to bring sky-high inflation under control.
“I’m more worried about inflation tonight than I was last night,” Summers said on Friday. “And I think it’s misleading not to see things that way.”
The most recent inflation data shows that consumer prices rose by a whopping 9.1% in June — the highest since November 1981.
Summers told CNN on Friday that “there’s nothing in this report to suggest that we’re getting inflation under control — rather the opposite.”
“Look, it’s always welcome news when people are getting jobs,” said the former Harvard University president who also served as an economic adviser to Barack Obama.
Summers then pushed back on CNN anchor Wolf Blitzer when he noted that the US had regained the jobs lost during the coronavirus pandemic.
“It’s welcome news when wages are going up. But I have to say, I don’t think it’s quite as rosy as your report suggested,” Summers said. “The principal problem of the economy for some time has been inflation.”
Summers, who has drawn fire from critics for suggesting that unemployment needs to rise in order to bring down the high cost of products, noted that while wages are up, they still lag behind the rate of inflation.
“Yes, wages did go up half a percent last month. But that’s about a 6% annual rate, and inflation has run at about 9% over the last year,” Summers said.
“I think our core problem, which is that we have an unsustainably overheated economy that’s leading to high inflation, which is cutting people’s paychecks, that, unfortunately, has not been addressed by the news in this report.”
Summers added: “So, I’m glad to see it, and it brings good news to a large number of families.”
“But I’m afraid we’re still in the kind of unbalanced situation that you and I have been talking on — talking about on this show for quite a long time.”
Summers said that the Fed must navigate treacherous terrain created by a combination of labor shortages in key sectors of the economy as well as high inflation.
He said that the strong jobs report will make it harder for the Fed to execute a so-called “soft landing” — aggressively hiking interest rates while at the same time avoiding tipping the economy into a recession.
“[W]hen you’ve got large numbers of vacancies, which we still do, when you’ve got such a labor shortage, which we still have, when you have wages going up rapidly in dollar terms, but not in purchasing power terms because prices are going up faster, you’re getting more and more of a cycle,” he said.
“And that’s making engineering the proverbial soft landing that much harder for the Fed.”
Summers praised the Democrat-led Congress for passing legislation, including the reconciliation bill as well as the CHIPS Act.
But he still believes that the economy is on course for a recession since “the fundamental challenge that the economy faces is a kind of overheating, and this just shows that we’re overheating more.”