Former US Treasury secretary Larry Summers. AP Photo/Michel Euler
Larry Summers said that the US is seeing the “least responsible” macroeconomic policy in decades.
The former Treasury secretary been critical of Biden’s $1.9 trillion COVID-19 relief package.
Summers said there’s “a one-third chance” of significant inflation over the next few years.
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Former US Treasury Secretary Larry Summers said that the country is seeing the “least responsible” macroeconomic policy of the past 40 years, resting the blame on lawmakers on both sides of the aisle.
Summers offered the negative economic forecast during an appearance on Bloomberg Television’s “Wall Street Week” on Friday. Summers has vocally criticized President Joe Biden’s recently signed $1.9 trillion COVID-19 relief package, saying it could overheat the economy.
“The [Federal Reserve] has stuck to its guns on no rate hikes for years and years and continuing to grow its balance sheet,” he told Bloomberg. “What is kindling is now igniting. I’m much more worried that we’ll have either inflation or a pretty dramatic fiscal-monetary collision.”
He added: “I think this is the least responsible macroeconomic policy we’ve had in the last 40 years. I think fundamentally, it’s driven by intransigence on the Democratic left and intransigence and completely unreasonable behavior on the whole of the Republican party.”
Summers, who served in Bill Clinton’s Cabinet and directed the National Economic Council in 2009 and 2010 under former President Barack Obama, argued that the country is “running enormous risks.” He said he believes there’s “a one-third chance that inflation will significantly accelerate over the next several years.”
He offered additional scenarios pertaining to the country’s economic outlook.
“There’s a one-third chance that we won’t see inflation, but that the reason we won’t see it is that the Fed hits the brakes hard, markets get very unstable, and the economy skids closer down to a recession,” he said. “I think there’s about a one third chance that the Fed and the Treasury will get what they’re hoping for and we’ll get rapid growth that will moderate in a non-inflationary way.”
He added: “There’s the real risk that macroeconomic policy will be destabilizing.”
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For months, Summers has been sounding the alarm of inflation fears, writing an op-ed in The Washington Post in January where he wrote that Biden’s relief package could cause “inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability.”
While Summers praised the COVID-19 package’s “ambition” and its “rejection of austerity orthodoxy,” he stated that garnering legislative support for tax increases or spending reductions could prove to be difficult and might pose a “risk of inflation expectations rising sharply.”
Treasury Secretary Janet Yellen had a different perspective, encouraging robust stimulus measures.
“It’s a big package, but I think that we need to go big now, and that we can afford to go big,” Yellen told PBS NewsHour anchor Judy Woodruff in an interview shortly before the legislation was approved by the Senate.
Yellen has also repeatedly dismissed concerns of inflation. “I’ve spent many years studying inflation and worrying about inflation. And I can tell you we have the tools to deal with that risk if it materializes,” she told CNN in January.
The Biden administration has been vigilant about not repeating the legislative and political mistakes of the $787 billion American Recovery and Reinvestment Act of 2009, which was signed into law by former President Barack Obama in response to economic impacts of the Great Recession.
The stimulus measure, which was championed by Obama and congressional Democrats, became a political liability for the party in the 2010 midterm elections, which saw the GOP retake the House and make sweeping gains across the country.
White House Council of Economic Advisors chair Cecilia Rouse said on MSNBC’s “The Sunday Show with Jonathan Capehart” last week that not doing enough to help the economy would pose a bigger threat, especially as the country is working to end the COVID-19 pandemic.
“When one makes an economic investment, there are risks,” she said. “There is a risk that this [relief package] will overheat the economy and cause inflation. However, it’s really in our estimation that the risk of doing too little is actually greater the risk of doing too much.”
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