The rosy jobs report released on Friday was doused in doubt by economist Larry Summers, who claimed the statistics showed the U.S. economy is overheating and most certainly headed for a recession, Newsweek reports.
Summers, who served as the United States Treasury secretary from 1999 to 2001 and as former President Barack Obama’s director of the National Economic Council, made the remarks to CNN’s Wolf Blitzer on Friday in reaction to fresh federal data that showed stronger-than-expected employment growth. Summers’ assessments of the fragile status of the economy have gained more weight in light of his forecast that President Joe Biden’s stimulus measures will dramatically raise inflation.
The unemployment rate decreased even more in July, from 3.6 percent to 3.5 percent, extending months of post-pandemic employment increases. The U.S. unemployment rate has reportedly returned to the levels it was in February 2020, before the coronavirus outbreak forced the economy to lose jobs.
Summers was questioned by Blitzer if his prior assessment that there is a three-fourths possibility the US economy will enter a recession over the next two years had altered as a result of the study. Summers asserted that he stood by his forecast.
“The fundamental problem, the fundamental challenge that the economy faces is a kind of overheating,” said Summers. “And this just shows that we’re overheating—overheating more.”
Summers said that the $1.9 trillion COVID-19 stimulus program from Biden will lead to “inflationary pressures of a type we have not seen in a generation” in a February 2021 op-ed in the Washington Post.
Given how much the epidemic had already hurt the economy, Biden and his economic advisors at the time dismissed inflationary worries.
However, a crucial indicator of inflation, the consumer price index, has increased, rising from 8.6 percent in May to a record-breaking 9.1 percent in June.
Too much demand for too few available items is what economists blame for inflation. Rising wages and solid job growth in the US have been correlated with rising inflation.
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