After a recent report revealed that American businesses had added 528,000 people to their payrolls during the last month, Larry Summers said his worries about inflation have only intensified. The ex-treasure secretary explained that it’s good news that businesses began hiring more U.S. citizens, but the bad news is that the situation will further complicate the Federal Reserve’s struggle to keep the sky-high inflation under control while Joe Biden is president. “I’m more worried about inflation tonight than I was last night,” Summers explained. “And I think it’s misleading not to see things that way.”
According to the most recent figures on inflation, consumer prices increased by a staggering 9.1% in June, which is the highest rate since November 1981. Summers went on to say 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 president of Harvard University, who also worked as Barack Obama’s economic adviser.
When CNN host Wolf Blitzer pointed out that the U.S. had gained the jobs lost during the coronavirus pandemic, Summers retaliated by criticizing Blitzer, said the NY Post. “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 come under fire from critics for arguing that higher unemployment is necessary to reduce the high cost of goods, pointed out that while salaries have increased, they have not kept pace with 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 explained: “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.”
He noted that the Fed had a dangerous job of battling inflation and labor shortages in important economic sectors. He claimed that the positive jobs data will make it more difficult for the Fed to carry out a so-called “soft landing,” which involves quickly raising interest rates without driving 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 complimented the Democratic-led Congress for introducing laws, such as the CHIPS Act and the reconciliation bill. However, he persists in his belief that a recession is inevitable because “the fundamental challenge that the economy faces is a kind of overheating, and this just shows that we’re overheating more.”