Treasury Secretary Janet Yellen and the department’s former top boss, Larry Summers, are on opposite sides of the debate regarding whether the US economy is tipping into a recession.
Yellen and Summers provided markedly different viewpoints on the state of the economy just days before the Federal Reserve is expected to implement another massive rate hike – a move likely to increase fears of an economic slowdown.
Summers, who served as head of the Treasury Department during the Clinton administration, said he is doubtful that the Fed will be able to tackle decades-high prices without triggering a slowdown.
“I think there’s a very high likelihood of recession,” Summers said during an appearance on CNN. “When we’ve been in this kind of situation before, recession has essentially always followed – when inflation has been high and unemployment has been low.”
‘Soft landings’ represent a kind of triumph of hope over experience. I think we’re very unlikely to see one,” he added.
Meanwhile, Yellen acknowledged that the US economy is showing signs of a slowdown during a Sunday appearance on NBC’s “Meet The Press.” But she downplayed the risk of a recession, noting that the labor market is strong and US economy added a net average of 375,000 jobs over the last three months.
“This is not an economy that’s in recession, but we’re in a period of transition in which growth is slowing. That’s necessary and appropriate and we need to be growing at a steady and sustainable pace.”
“You don’t see any of the signs now,” Yellen added. “A recession is a broad-based contraction that effects many sectors of the economy. We just don’t have that.”
Yellen added that she would be “amazed” if the National Bureau of Economic Research declares a recession in the near future.
“I would be amazed if the NBER would declare this period to be a recession, even if it happens to have two quarters of negative growth,” she said. “We’ve got a very strong labor market. When you’re creating almost 400,000 jobs a month, that is not a recession.”
The outlooks reveal another point of disagreement between Summers and Yellen – who famously clashed last fall over whether inflation was transitory in nature.
Summers was proven correct, as inflation surged to a four-decade high of 9.1% in June despite Yellen’s past assurances. In late May, Yellen admitted that she was “wrong” about the path inflation would take in the US economy.
Summers also disagreed with Yellen last month after she declared there was “nothing to suggest a recession is in the works.”
“When inflation is as high as it is right now and unemployment is as low as it is right now, it’s almost always been followed, within two years, by recession,” Summers said during an appearance on CNN at the time.
“I look as what’s happening in the stocks and bonds markets, I look at where consumer sentiment is, I think there’s certainly a risk of recession in the next year and I think given where we’ve gotten to, it’s more likely than not that we’ll have a recession within the next two years,” Summers added.