Former Treasury Secretary Summers: "High Possibility of a Soft Landing for the US Economy"

Existing Recession Expectations Overturned
Growing Prospects for a Soft Landing in the US

Larry Summers, a Harvard professor and former U.S. Treasury Secretary, stated on the 11th (local time) that the possibility of a soft landing for the U.S. economy is very high. With Summers, who accurately predicted the recent surge in inflation not seen in decades, reversing previous recession forecasts, expectations are growing that the U.S. economy will successfully achieve a soft landing.

At an Economic Club event held in New York on the 11th (local time), Professor Summers said, "The likelihood of a soft landing for the U.S. appears higher than at any time since 2021," adding, "While we cannot be certain of a soft landing, it is definitely a very realistic possibility."

He assessed that the Federal Reserve's (Fed) interest rate hikes have succeeded in slowing demand without hindering growth. This is attributed to Americans continuing their consumer spending despite rising interest rates.

Although a soft landing is within sight, inflation risks remain. Professor Summers analyzed that the recent slowdown in inflation rates is due more to a base effect from the previous surge in inflation rather than fundamentally achieving low inflation. He further explained that wage growth and labor cost increases "significantly exceed the Fed's inflation target of 2%." In fact, the U.S. Consumer Price Index (CPI) inflation rate rose from 3.1% in November last year to 3.4% in December (year-over-year basis).

Former Professor Summers predicted that the Fed will cut interest rates two to three times this year. He evaluated, "The market is somewhat ahead in anticipating how much and whether the Fed will cut rates in the coming months." The market expects the Fed to begin its first rate cut in March and that the total cuts for the year will reach 140 basis points (1bp = 0.01 percentage points).

Summers' remarks on the soft landing come amid recent acknowledgments by U.S. economists that their previous recession forecasts made a year ago were mistaken. Early last year, many economists believed that inflation could not be controlled without a recession, but currently, the U.S. economy is maintaining solid growth while overheating inflation and employment have eased.

Until the end of last year, Summers himself was concerned about soaring inflation and a recession, but within a month, he began mentioning a soft landing. Earlier, in December last year, Paul Krugman, a Nobel laureate in economics and professor at the City University of New York, attacked Summers by saying, "The U.S. has achieved a soft landing." Summers responded by stating, "A recession is a real risk," and "It is still too early to declare a soft landing for the U.S. economy." With Summers now shifting his outlook to a soft landing within a month, expectations are spreading further in the market and academia that the U.S. economy can achieve a soft landing this year.

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