Summers says risk is Fed concludes things are ‘under control’
Former Treasury Secretary Lawrence Summers said he’s concerned that a slowing in headline inflation in upcoming data will prompt the Federal Reserve to conclude its policies are working, when much more action is in fact needed.
Summers highlighted that his sometime intellectual sparring partner on economics, the Nobel laureate Paul Krugman, also cautioned that it’s not time for the Fed to alter course.
Krugman wrote earlier in the New York Times that “the good news we’re about to get about short-term inflation isn’t evidence that the strategy has already worked, and alas (I’m usually a monetary dove), it offers no justification for a pivot toward easier money.”
Without significantly boosting real interest rates -- which are adjusted for some gauge of inflation -- “then we’re just setting the stage for stagflation,” he said.
Bloomberg 6 August 2022
Policymakers should respond to the good inflation news by keeping calm and carrying on.
Paul Krugman 5 August 2022
https://www.nytimes.com/2022/08/05/opinion/inflation-declining-gas-prices.html
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