by Mitch Kokai
Senior Political Analyst, John Locke Foundation
I am sure that Larry Summers would have preferred not to have seen today’s inflation numbers, but he might just have felt a flicker of satisfaction at further confirmation that he has been on the right track about rising prices.
Under the circumstances, it’s worth scrolling back a few days and seeing what Summers was quoted by Bloomberg as saying last week:
“Former Treasury Secretary Lawrence Summers said that even after the Federal Reserve’s recent hawkish pivot and after a selloff in Treasuries, both policy makers and investors are still underestimating what will be required to bring down inflation.
“‘My own view is that the Fed and the markets are still not recognizing what’s likely to be necessary,’ Summers said on Bloomberg Television’s ‘Wall Street Week’ with David Westin. ‘The market judgment and Fed’s judgment is that you can somehow contain this inflation without rates ever rising above 2.5% in terms of the fed funds rate.’ …
.… “‘What we’re going to find out is what the vulnerability of the economy is to rate increases,’ Summers said. ‘It may be, as some argue, that because of greater levels of debt, because asset prices are substantially inflated, the economy is more vulnerable than usual to rate increases or to quantitative tightening.’”
I would focus on that last sentence. Firstly, it raises the question of whether the Fed has the stomach to increase rates (or expectations of where they will go) to a level that may lead to a possible crash (a level that may not be that much higher than current expectations. …
… Is the Fed prepared to risk (or tough out) a crash?
Then there is the question of what rate hikes might mean for the indebted.