Former Treasury Secretary Larry Summers Warns That a Fed Rate Cut Would Pose Significant Risks and Be a Grave Mistake
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Former Treasury Secretary Larry Summers Warns That a Fed Rate Cut Would Pose Significant Risks and Be a Grave Mistake

Larry Summers, the former Treasury Secretary, is cautioning against a potential rate cut by the Federal Reserve, stating that it would be a significant error. In an interview with Bloomberg Television, Summers discusses the latest core consumer price index (CPI) figures, which exceeded expectations, and argues that the presence of accelerated inflation should not come as a surprise. Summers points to the strong economic growth, low unemployment rate, growing budget deficits, and easy financial conditions as factors contributing to the robust inflation. He recently co-authored a paper that challenges the Fed’s current measurement of inflation, suggesting that it significantly understates the actual level of inflation. According to Summers, if inflation is indeed higher than officially acknowledged, cutting rates in June would be a grave mistake. He emphasizes that the concept of supercore inflation, which excludes transitory factors and considers housing costs, supports the argument that inflation is running above 6%. Summers suggests that the neutral rate is higher than the Fed’s benchmark, indicating that the next rate move could potentially be upwards. While acknowledging that unforeseen events could change the situation, he believes that a rate cut in June would be a dangerous error similar to the Fed’s mistakes in the summer of 2021 regarding inflation.

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