The economy still risks falling into a recession, former Treasury Secretary Larry Summers warned. The U.S. economy could face a “Wile E. Coyote moment” as it seeks to tame inflation with interest rate hikes, Summers said.
The former treasury secretary warned that despite efforts made by the Federal Reserve, the risk of a recession still looms large, and he expects the Fed will have to raise its benchmark interest rate higher than expected.
Summers said the central bank’s “push and push” to combat inflation will soon trigger a downturn.
He said the U.S. economy could face a “Wile E. Coyote moment” as it seeks to tame inflation with interest rate hikes, referencing the cartoon canine’s relentless — yet futile — pursuit of the speedy Roadrunner off a cliff and into mid-air.
For the past year, the Fed has enacted a series of interest rate hikes aimed at chilling demand and cooling down historically high inflation. In recent months, as the pace of price increases has moderated, the central bank has eased off the gas pedal.
During an appearance on CNN This Morning, Summers told co-anchor Poppy Harlow that he expects the Federal Reserve will raise its benchmark rate higher than expected.
“That’s a risky thing because, historically, we don’t tend to be able to engineer soft landings from significant inflation,” Summers said. ”And so my guess is that at some point the Fed will push and push.”
“We will not get inflation to accelerate and skyrocket out of control,” Summers said. “But my guess is that the process of bringing down inflation will bring on a recession at some stage, as it almost always has in the past.”
Summers said that right now businesses are keeping their employees because there has been a labor shortage over the past couple of years, but that as that goes away, businesses will feel like there is less pressure to hold onto workers.