- Larry Summers said the U.S. sees the “least responsible” macroeconomic policy in decades.
- The former Treasury Secretary was critical of Biden’s $ 1.9 billion COVID-19 aid package.
- Summers said there is a third chance of significant inflation over the next few years.
- See more stories on Insider’s business page.
Former U.S. Treasury Secretary Larry Summers said the country sees the “least responsible” macroeconomic policy of the past forty years, which blames lawmakers on both sides of the aisle.
Summers presented the negative economic forecast during an appearance on “Wall Street Week” on Bloomberg Television. Summers expressed President Joe Biden’s recently signed $ 1.9 billion COVID-19 aid package, saying it could overheat the economy.
“The [
Federal Reserve
] has kept track of no rate hikes for years and continued its balance sheet, “he told Bloomberg.” What ignites is now on fire. I am much more concerned that we will have inflation or a fairly dramatic fiscal-monetary collision. ‘
He added: “I think this is the least responsible macroeconomic policy we have had in the last forty years. I think fundamentally, it is driven by intransigence on the Democratic left and intransigence and completely unreasonable behavior for the entire Republican Party. . “
Summers, who served in Bill Clinton’s cabinet and chaired the National Economic Council under former President Barack Obama in 2009 and 2010, argued that the country was “running enormous risks.” He said he believes there is a third chance that inflation will accelerate significantly over the next few years. ‘
He presented additional scenarios regarding the economic prospects of the country.
“There is a third chance that we will not see inflation, but that the reason why we will not see it is that the Fed is braking hard, the markets are becoming very volatile and the economy is falling to a
recession
“he said.” I think there is about a third chance that the Fed and the Treasury will get what they are hoping for and that we will get rapid growth that will be moderate in a non-inflationary way. ”
He added: “There is a risk that macroeconomic policy will destabilize.”
Read more: Meet the presidential confidants, the close and well-positioned Delaware Congress delegation, Joe Biden, confirming his legacy
Summers has been sounding the alarm about inflation fears for months, and he wrote a headline in The Washington Post in January in which he wrote that Biden’s aid package could cause ‘inflationary pressures of the kind we have not seen in a generation, with consequences for the value of the dollar and financial stability. ‘
While Summers praised the COVID-19 package’s ‘ambition’ and ‘rejection of sobriety orthodoxy’, he said obtaining legislative support for tax increases or spending cuts could be difficult and increase a “risk of inflation expectations”. . “
Treasury Secretary Janet Yellen had a different perspective and encouraged strong stimulus measures.
“It’s a big package, but I think we need to get big now and we can afford to get big,” Yellen told PBS NewsHour anchor Judy Woodruff shortly before the Senate passed legislation. .
Yellen also repeatedly dismissed concerns about inflation. “I have been studying inflation for years and worrying about inflation. And I can tell you that we have the tools to deal with the risk if it materializes,” she told CNN in January.
The Biden government has been vigilant about repeating the legislative and political mistakes of the $ 787 billion 2009 U.S. Recovery and Reinvestment Act, which was signed by former President Barack Obama in response to the economic consequences of the Great Recession.
The stimulus measure, advocated by Obama and the Congressional Democrats, became a political liability for the party in the 2010 midterm elections, which allowed the GOP to re-occupy the House and make a nationwide profit.
White House Chairman of Economic Advisers Council Cecilia Rouse said last week on MSNBC’s The Sunday Show with Jonathan Capehart that a bigger threat would pose a bigger threat if it did not do enough to help the economy, especially as the country tackles the COVID-19 pandemic end.
“When one makes an economic investment, there are risks,” she said. “There is a risk that it [relief package] will overheat the economy and cause inflation. However, in our estimation, the risk of doing too little is actually greater than the risk of doing too much. ‘