Former U.S. Treasury Secretary Summers (Lawrence Summers) warned that the earliest next year, the Federal Reserve Board (Fed) may have to raise interest rates, the timing of interest rate hikes will be much earlier than the market expects.
Summers said in a Bloomberg TV interview on the 19th, once the U.S. economy overheated, rising prices, the Fed may be forced to raise interest rates to curb Inflation.
Summers has served as an important official in two Democratic administrations, is inclined to support the Democratic Party’s heavyweight economists, but he has recently frequently criticized President Biden‘s $1.9 trillion bailout package in the media, worried that this set of large-scale spending plans will be injected too much money in the U.S. economy, leading to economic overheating, and thus touching inflation. He called for spending to focus on longer-term investments.
Summers believes that Fed officials “do not recognize what kind of years they will face”. He pointed out that the Fed will soon face the same challenges as in the 1970s, when the Fed failed to curb hyperinflation.
If the Fed doesn’t want to fail, it has to start recognizing the reality of those challenges,” he said. That means they’re going to change their tone significantly.”
Summers said Biden’s proposal would channel too much money into household balance sheets, such as cash handed out to people that might be saved up instead of invested in expanding the economy’s capacity. He said, “I can’t think of any other use of federal resources that lacks more urgency than improving consumer balance sheets.”
The Biden Administration plans to continue pushing the Infrastructure and Green Energy Investment Act after the Epidemic relief package is passed.
In addition, Summers also criticized the Federal Reserve officials support to increase the size of fiscal stimulus measures, as well as the stance of the short s within the intention to tighten monetary policy, said the Federal Reserve will face the challenge of runaway inflation in the 1970s, if you want to avoid policy failure, the authorities should start to acknowledge the challenges, meaning that officials must make a major shift in their rhetoric.
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