Summers: A positive shift in the US Federal Reserve, high growth will cause inflationary pressure in itselfPaul Roberts 25 / March / 22 Visitors: 295
The Fed now wants to keep unemployment at 3.5% for three years and keep rates below neutral. At the same time, he expects inflation to decrease. Indeed, it is possible that this will happen, but I would not expect it. This is how well-known economist and former Finance Minister Larry Summers assesses the latest developments in the field of US monetary policy. At the same time, he adds that the Fed should only gradually change its policy, and the recent shift in the thinking of Fed representatives is the first step in this direction, the economist believes.
Summers also noted that markets now expect a slower rate hike than the Fed says. Overall, it's a difficult situation, and Summers says he's glad the Fed has changed its mindset toward withdrawing stimulus more quickly. Although it is still obvious that he continues to think of inflation mainly as a transient phenomenon. As the editor of Bloomberg noted, the reason may be that the tension in the production verticals is considered to be at the center of higher inflationary pressure, and it really should weaken. Summers, however, pointed to the high price pressures associated with housing and rents, which are also reflected in the official figures only with a delay.
The economist also mentioned the "hot labor market", where wage growth is accelerating. Labor is the most important value, and since firms have sufficient market power, they transfer it to selling prices. Overall, the U.S. economy will grow by about 4%, with minimal productivity gains and a tight labor market. This, according to the economist, will in itself create tension on the supply side of the economy, although the pressure caused by the pandemic will ease.
It's possible that those who talk about temporary problems in the supply chain will eventually be right, but we can't bet on that, Summers said. He is so glad that Fed Chairman Jay Powell has already abandoned the term "transitional inflation." "But no one knows, and it can be solved eventually in some reasonable way," he added, adding that the development of supply and demand in the economy is uncertain, so it is unclear how their mutual relationship and, consequently, inflationary pressure will develop.
At the end of the interview, Summers commented on the ongoing discussion about the conflict of interest in investing. He says he is a big supporter of capitalism, but lawmakers who have information about the new legislation on the stock market and the corporate sector should not be allowed to trade stocks. By their polls. The solution may be to invest in equity funds with the inability to invest in specific companies.
Paul Roberts 51 years old Born in Edinburgh. Married. Studied at University of Oxford, Department of Public Policy and Social Work. Graduated in 1997. Works at Standard Life Aberdeen plc.