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Larry Summers Says Fed’s Job ‘Much, Much Closer To Being Done,’ But ‘It’s A Little Bit Premature’ To Pause

ByShanthi Rexaline

Jan 14, 2023
Larry Summers Says Fed's Job 'Much, Much Closer To Being Done,' But 'It's A Little Bit Premature' To Pause

Former Treasury Secretary Lawrence Summers said on Friday that the Fed’s job in corralling inflation is closer to being done, and also mentioned one important imminent macroeconomic indicator to monitor.

What Happened: The good part of the news is that there has been some wage restraint, Summers said in an interview with Bloomberg. At the same time, one has to be careful of false dawns, he warned.

Inflation running in the 6% level was treated as a step in the right direction, but it is still inconceivably high by the standards of two to three years ago, Summers said. He added that he sticks with his view that a recession this year is more likely than not.

“But certainly looking at some of these trends, one has to think that the Fed’s job is much, much closer to being done, feels much, much closer to being done in terms of disinflation than it did a few months ago,” Summers said. The more optimistic possibilities, which he doesn’t subscribe to, look more plausible today than they did several months ago, he added.

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On Data Watch: Summers said data should be watched “very, very” closely. He noted that employment cost index data due on the final day of the month is a “gold standard measure” of labor costs and wage pressure.

“And that’s a number they’ll be studying very, very closely at the Fed and I suspect on Wall Street,” Summers said. “And I’ll certainly be up early that morning to get that number right after that.”

When asked if the Fed at least talk about a pause, Summers said, “we’re still not quite at that point.” A pause in February won’t be well advised, and a definite decision needn’t be made beyond February, he said.

“Again, I think the most important thing is to make sure that the job of containing inflation gets done and that they preserve their credibility,” the former Treasury chief said.

“So I think it’s a little bit premature at this point to be thinking about pausing, but we’re getting much closer to that day.”

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Photo: courtesy of Chatham House on flickr



Image and article originally from www.benzinga.com. Read the original article here.