Summers: "No US Recession, But Inflation Returning to 2% Is Impossible"

"Fed acted too late, lost trust"
"Credit crunch due to bank crisis... Effect of interest rate hike"

Former U.S. Treasury Secretary Larry Summers said on the 26th (local time) that "inflation cannot be brought back to 2% without a recession."

At the Morningstar Investment Conference held in Chicago that day, former Secretary Summers stated, "Taming inflation is likely to cause a significant recession." He is regarded as one of the most accurate predictors of the recent inflation phase.

He said, "Fiscal stimulus and low interest rates during the pandemic turned the U.S. from a country with a 2% inflation rate to one with a 5% inflation rate," adding, "I believe it will be difficult to reach the 2% inflation target without a considerable economic slowdown." He also added, "The Federal Reserve (Fed) acted too late and lost credibility," and "I am not very optimistic about the fight against inflation."

Former Secretary Summers said the Fed should raise the benchmark interest rate by 0.25% at the Federal Open Market Committee (FOMC) meeting scheduled for the 4th of next month.

Earlier this month, in an interview with Bloomberg TV, former Secretary Summers predicted, "The likelihood of a U.S. recession is increasing," and "The Fed's rate hikes are nearing their final stages."

In fact, the U.S. consumer price inflation rate is slowing down. In March, U.S. prices rose 5% year-on-year, a smaller increase compared to 6.0% in February.

Regarding the recent banking crisis, former Secretary Summers emphasized, "Bank failures are leading to credit tightening that functions similarly to the Fed's rate hikes," and "If the banking system operates smoothly, large rate hikes are not necessary." This statement is similar in intent to recent remarks by current Treasury Secretary Janet Yellen. In an interview with CNN aired on the 16th, Secretary Yellen said, "Recent bank failures have increased caution among banks, leading to tighter lending," and "This could substitute for further Fed rate hikes."

Regarding the recent conflict between the White House and the Republicans over raising the federal government debt ceiling, he assessed the possibility of a government default (debt default) as "less than 2%."

This content was produced with the assistance of AI translation services.