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On CNN’s “Situation Room” Friday, Harvard professor, economist, director of the National Economic Council under President Barack Obama and Treasury Secretary under President Bill Clinton Larry Summers said that while it’s good that the report on jobs shows that people are getting work and wages are rising, “nothing” indicates “that we have inflation under control, rather the opposite”. And that while wages have been rising in dollar terms, purchasing power is falling because prices are rising faster and you’re “creating more and more of a cycle” that will make it harder to avoid recession and lower inflation.
Summers stated: “Look, it’s always welcome news when people get jobs. It’s welcome news when wages rise. But I have to say I don’t think it’s as rosy as your report suggested. The main problem of the economy for a long time has been inflation. And there is nothing in this report to suggest that we are controlling inflation, quite the opposite. Yes, wages rose half a percent last month. But that’s about an annualized rate of 6%, and inflation has hovered around 9% over the last year. I think our main problem, which is that we have an unsustainable overheating of the economy which is leading to high inflation, which is reducing people’s wages, which, unfortunately, has not been addressed by the news in this report. 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 about — we’ve been talking about on this show for a long time.”
He added, “[W]you have a lot of vacancies, which we still do, when you have such a labor shortage, which we still have, when your wages are rising rapidly in dollar terms, but not in purchasing power terms, because prices are rising faster, you get all and more circle. And that makes engineering the proverbial soft landing much more difficult for the Fed.”
Summers further said that while he is pleased that the reconciliation bill and the CHIPS Act are positive developments for the economy, “I’m more concerned about inflation tonight than I was last night. And I think it’s misleading not to see things that way.” And that the report does not change his belief that there is a 75% chance of a recession in the next two years because “the fundamental challenge facing the economy is a kind of overheating, and this just shows that we are overheating more. “
Follow Ian Hanchett on Twitter @IanHanchett
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