Former Treasury Secretary Larry Summers says he doesn’t think the US is in recession now, but says the economy has a 75% chance of going into recession in the next 18 months.
“I don’t think we’re in a recession,” Summers told Yahoo Finance in an interview. ,[But] Given the high inflation and the difficulties associated with bringing it down, the required monetary policy response, the likelihood of the economy going into recession within the next 18 months is quite serious, and probably in the range of three quarters. ,
Summers says he believes that if the economy gets into a state where unemployment rises, it will increase substantially. “So I would expect sometime within the next two or three years, that the unemployment rate will cross 6%,” Summers said.
Summers’ remarks come after the appointments of him and four former Treasury secretaries – both Republican and Democratic – issued a statement supporting the Inflation Reduction Act, Summers was instrumental in getting Senator Joe Manchin to endorse the new bill, a diluted version of what became known as the Build Back Better Bill.
Still, Summers doesn’t believe this law will be enough to control inflation.
“This bill is certainly not enough to control our inflation problem,” Summers said. “And even with the spread, we are going to have inflation problems for some time to come. However, the important thing is that it is doing a whole set of essentials for our country, while initiating the process of easing inflationary pressures. ,
In a statement, the former Treasury secretaries said, “Additional taxes imposed on corporations do not reflect an increase in the corporate tax rate, but instead reflect the realization of lost revenue for tax avoidance and provisions that benefit the most prosperous.” Huh.”
Adding: “Selective presentation by some of the distribution effects of this bill ignores the benefits to middle-class households from reducing deficits, lowering drug prices, and more affordable energy.”
Asked about the impact on the labor market and corporate investment plans given some of the bill’s tax provisions, Summers said, foreign jobs are more likely to be brought home than anything, if anything.
“I don’t think the effect [of the bill] is likely to be detrimental,” Summers told Yahoo Finance. “Incentives for renewable investment in particular … are likely to do far more to encourage investment than to close various loopholes, which in some cases are In, encourage financial manipulation rather than actual. productive investment.”
Summers said: “And in fact, by expanding the taxation of their global income, relative to their household income, I really think it could encourage bringing jobs home.”
Summers’ comments and the Biden administration’s push to pass this bill comes after Last week’s GDP figures shown The economy shrank for the second quarter in a row. Two quarters of negative GDP growth meet the informal definition of a technical recession.
However, the Biden administration To note there has been pain in recent weeks Recession is only formally called by the National Bureau of Economic Research. NBER defines recession as:“A significant drop in economic activity that extends across the economy and which lasts for more than a few months.”
This slowdown in growth also comes as the Federal Reserve continue your campaign With raising interest rates to slow inflation Several Fed officials reiterate this week The commitment of the central bank to reduce inflation. Comments That Come From Investors Increasing stock prices and reducing bond yields Amid doubts, the Fed will be able to follow the additional rate hikes and avoid a recession.
Despite slowing growth, Summers says he thinks the Federal Reserve should keep pedaling to the metal when it comes to raising interest rates to quell inflation.
“If the economy seems to be slowing down, it would be tempting to hold off on raising interest rates, and in fact, people in the market are expecting interest rates to come down from December or January,” says Summers. “I think it would be a serious error.”
Summers says he expects strong economic growth last year, along with supply-chain issues, that inflation will be with us for some time, until we have a recession. “I think we are unlikely to restore inflation to target levels in scenarios that do not involve a recession at some point,” he said.