Larry Summers Warns of Risk of Sharp Rise in Interest Rates

Former U.S. Treasury Secretary Larry Summers has warned that the Federal Reserve's monetary policy tightening is having limited impact, raising the risk of a sharp rise in interest rates.

In an interview with Bloomberg, Summers said that recent evidence of strong underlying inflationary pressures in the economy indicates that the Fed's tighter monetary policy is not getting much traction. He said this could lead to an unexpected surge in interest rates and the risk of “hitting the brakes very, very hard.”^[0]

Summers suggested that the Fed should tread cautiously and view the situation with a lot of humility.^[1] He warned against the Fed locking itself in with any kind of strong pronouncements, as this could lead to further inflationary pressures and a potential crash down the road.

While inflation data appears to be broadening, Summers believes it is too soon to argue for the Fed to raise interest rates at the next meeting in March.^[2] He argued that the Fed should wait and see what happens before making any more drastic decisions.

0. “Larry Summers warns US economy headed for ‘collision' as Fed rate hikes aren't working” Fox Business, 20 Feb. 2023, https://www.foxbusiness.com/economy/larry-summers-warns-us-economy-headed-collision-fed-rate-hikes-arent-working

1. “Former treasury secretary Summers says there is a risk the Fed hit the brakes very hard – Bloomberg By Investing.com” Investing.com Canada, 17 Feb. 2023, https://ca.investing.com/news/economy/former-treasury-secretary-summers-says-there-is-a-risk-the-fed-hit-the-brakes-very-hard–bloomberg-432SI-2906031

2. “Former Treasury Secretary Larry Summers Said That While Inflation Data Are Showcasing a … – Latest Tweet” LatestLY, 18 Feb. 2023, https://www.latestly.com/socially/business/former-treasury-secretary-larry-summers-said-that-while-inflation-data-are-showcasing-a-latest-tweet-by-bloomberg-4856990.html