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Fed Is Behind the Curve on Countering Runaway Inflation Risks, Summers Says

By James Glynn


SYDNEY--Former U.S. Treasury Secretary Larry Summers has sounded alarm bells over risks of runaway inflation in the U.S., saying the Federal Reserve is moving glacially in its efforts to counter the threat.

The Fed's traditional role is to "remove the punchbowl just before the party starts," Mr. Summers told a Citi investment conference in via Zoom on Wednesday.

"Now the party's gotten great and the Fed's not removing the punchbowl until they've seen...conclusive evidence that everyone's going to get plastered," he said.

Mr. Summers said record labor shortages, 20% housing inflation, the highest oil and gasoline prices in eight years and the government involved in a major fiscal stimulus program have all been warning signs of a costly rise in inflation and inflation expectations.

Amid all of this the Fed is continuing a major monetary expansion by buying bonds, he said.

"I don't think we are in a terribly rational or sound place. I think we are taking big risks," Mr. Summers said.

Rising prices shouldn't be a surprise given that the U.S. has embarked on a fiscal stimulus program that will deliver budget deficits of 15% of GDP for an economy that had a 2% or 3% GDP gap, he added.

"That's a prescription for overheating," he said. "It's magnified when you have zero rates and a large quantitative easing program, and a $2 trillion savings overhang."

With inflation well above the Fed's 2% target, and with the central bank not talking about raising the interest rate for a year and a half, "you are not doing much that is going to contain an inflationary psychology," he said. "We are setting the stage for very substantial levels of difficulty."

The comments by Mr. Summers come after the government on Tuesday reported U.S. job openings fell in August from an all-time high, but even more noteworthy was a record number of people leaving their jobs.

The so-called quit rate climbed to 2.9% overall and 3.3% for private-sector employees. Both are the highest figures on record since the government began to keep track in 2000.


Write to James Glynn at


(END) Dow Jones Newswires

October 12, 2021 22:48 ET (02:48 GMT)

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