Larry Summers accuses Federal Reserve of having “dangerous pleasure” over inflation
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Former U.S. Treasury Secretary Lawrence Summers has strongly criticized the Federal Reserve for its quiet monetary policy, accusing the central bank of creating “dangerous pleasure” in the financial markets and misreading it. economy.
Summers’ comments at a conference hosted by the Atlanta Federal Reserve Bank saw a significant rise in attacks on the U.S. central bank. Former Harvard University economist and senior Democratic adviser has already criticized Joe Biden fiscal stimulus an excessive excess as well as earlier this year.
Summers said money and tax policy makers “have greatly underestimated the risks, both to financial stability and to regular ones. inflation the number of very long low interest rates ”.
The Fed has vowed to keep US interest rates at zero until the recovery reaches certain milestones, including full employment, while predicting rising inflation transient. Recent average forecasts by central bank officials show the downward rates that have been kept to a minimum until 2024.
“Projections of policies that suggest rates can’t rise… Are creating a dangerous calm about three years from now,” Summers said, adding that it could force a tightening of monetary policy that would frighten the Fed market and hurt the real economy.
“I think it’s very likely that when there’s a great need for policy adjustment, those adjustments will be unpredictable.” That “jolt” would “do real damage to financial stability and do real damage to the economy,” Summers warned.
The Powered he argued that strong economic support is still needed for the risk of a slowdown in recovery and the lack of employment compared to previous pandemic levels. He also does not expect the current rise in consumer prices to continue, arguing that it will be driven by supply chain bottlenecks and boost economic reopening.
Summers warned that the idea of an equal balance between inflation and deflation risks and financial bubbles and credit problems is “far from an accurate reading of the economy”.
“Currently, the main risks are warming, asset price inflation and subsequent financial leverage and subsequent financial instability. Not the economic downturn, excessive unemployment and excessive stagnation,” Summers said.
“Today it is impossible to confirm that the sluggishness of the labor market is a major problem in the contemporary American economy,” he added. “Walk away: labor shortage it is a widespread phenomenon. ”
The attacks on U.S. economic policy makers this summer have been particularly harsh because they are Democrats, and as a result sharp criticism within the party. Liberal activists, in particular, say it has nothing to do with the struggles in middle- and low-income households.
Summers is said to have been the secretary of the Treasury from 1999 to 2001 — respecting the anti-deficit market of the democratic economic establishment that supported tight fiscal policies in the Bill Clinton and Barack Obama administrations, leading to a middle class. stagnation and revolt against globalization.
That hasn’t stopped anyone from taking a very public stance on Summers. He said on Tuesday that the Fed’s new policy framework adopted in August last year to make it more tolerant of inflation after lessons from the financial crisis was not appropriate for the current environment.
“It’s not a reasonable place to be in a world where the policy deficit is increased by a 15% increase in a policy,” Summers said. “I’d rather go back than return to the Fed, which is responsible for preventing inflation, rather than the Fed [that] it worries the fears that it will have to worry about inflation. ”
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