Economist Larry Summers fired back at Treasury Secretary Janet Yellen Monday after she claimed he was “wrong” to sound the alarm about the growing risk of out-of-control inflation.
What is the background?
While speaking at a conference earlier this month, Summers — who served as Bill Clinton’s treasury secretary and Barack Obama’s director of the White House National Economic Council — warned of out-of-control inflation.
“We’re in more danger than we’ve been during my career of losing control of inflation in the U.S.,” he said, Bloomberg reported.
“We have a generation of central bankers who are defining themselves by their wokeness,” Summers also said. “They’re defining themselves by how socially concerned they are.”
Responding to Summers’ comments in an interview on CNN’s “State of the Union,” Yellen called Summers “wrong.”
“I think he’s wrong, I don’t think we’re about to lose control of inflation,” Yellen said.
Yellen then regurgitated Biden administration talking points, claiming inflation is connected to “high demand for goods,” before praising the “very good impact” of COVID-related economic rescue packages and President Joe Biden’s agenda.
How did Summers respond?
Writing in a lengthy Twitter thread, Summers said he hopes Yellen is right, but believes she is most likely wrong.
“[Yellen] expresse[d] confidence that inflation is decelerating and will be back to target levels by the end of next year,” Summers began. “I hope she is right but I think it’s much less than a 50/50 chance.”
To prove his point, Summers explained the Biden administration has continually adjusted inflation predictions — owing to the fact previous forecasts were proved wrong — and that Yellen was “misleading” in her claims on CNN.
When the Administration formulated its budget in February, it expected 2 percent inflation in 2021, I was warning about inflation. Their forecast is no longer operative. In May and June, @SecYellen expressed confidence that inflation would be back to the 2 percent range by late 2021 or early 2022. Now this forecast is no longer operative.
In @CNN interview, @SecYellen asserts twice that inflation has decelerated. This is a bit misleading as the 3 month and 12 month CPI inflation rates are both around 5 percent on an annual basis.
Summers went on to say that inflation predictors suggest inflation will continue to worsen and explained what that means for markets.
“Given lags in the indices, housing inflation is almost certain to soar in coming months. With super tight labor markets, rising strike activity and real wages having declined, increases in wage inflation are likely as well,” Summers said.
“I actually believe the gap between Treasury & Fed statements and the everyday experience of businesses and consumers in terms of inflation has widened in recent months. Until the Fed & Treasury fully recognize the inflation reality, they are unlikely to deal with it successfully,” he added.