Former US Treasury Secretary Lawrence Summers has said the Federal Reserve may need to hike interest rates multiple times due to persistent inflationary pressures, while warning that the US economy is still under pressure from tightening policies which for now appear to have limited impact.Avalanchedownside risk.
Summers told Bloomberg’s Wall Street Week on Friday (2) that there is still a long way to go to get inflation back to the Fed’s target and that Fed officials may need to raise interest rates further. higher than the market expects.
Interest rate futures show traders expect the Fed to raise interest rates to around 5% by May next year, while the current interest rate is between 3.75% and 4%. Additionally, economists expect the December meeting to raise interest rates by 2 yards.
Referring to the terminal fee, Summers said, “We can certainly put 6% into the scenario, which tells me 5% is not the best guess.”
Summers’ comments came after the United States reported that average hourly wages unexpectedly rose in November. She believes the best single indicator of underlying inflation is wages, and last month’s data showed that strong price pressures remain in the economy. “My feeling is that inflation will be a bit longer than people expect.”
US average hourly wages increased 0.6% in November, higher than market expectations, and the increase was the largest since January, and wages of manufacturing and non-management personnel increased 0.7 %, the highest level in almost a year.
While many indicators point to the limited impact of the Fed’s tightening efforts thus far, Summers warned that changes often come unexpectedly.
“All the mechanics are hard at work, and at some point, consumers will spend their savings, and then you’ll have a moment like Wile E. Coyote falling off a cliff,” he said.
Turning to the housing market, he said that when prices start to fall, there is often a flood of sellers entering the market to sell properties and at some point you see credit dry up and repayment problems erupt.
“Once you’re in a negative situation, there will beAvalanchekind of situation. I think we have a risk of that happening at some point, I don’t know when that will happen, but when it does, I think the impact will be powerful. “
Summers also cautioned that this is a relatively high-interest-rate recession, not the low-rate recessions seen in the past. She stressed that the Fed should not raise its inflation target to 3% from the current 2%, in part due to possible credit problems after allowing inflation to soar to such high levels over the past two years.
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