Recession is now the ‘most likely’ outcome for the U.S. economy, not a soft landing, Larry Summers says

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Recession is now the ‘most likely’ outcome for the U.S. economy, not a soft landing, Larry Summers says​

Last Updated: April 15, 2022 at 11:41 a.m. ETFirst Published: April 14, 2022 at 12:45 p.m. ET
By

Vivien Lou Chen​

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‘The odds on a hard landing within the next 2 years are certainly better than half, and quite possibly two-thirds or more,’ says the former Treasury secretary​

Larry Summers.​

MIKE THEILER/AFP VIA GETTY IMAGES

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Length3 minutes



Former Treasury Secretary Larry Summers, whose out-of-consensus views about the risks of persistent inflation have come true, is reiterating his concerns about a potential U.S. downturn: He now says a recession is “the most likely thing” partly because the Federal Reserve “is going to have to keep going [in its effort to subdue inflation] until we see disinflation.”

In an interview with Bloomberg Economics released on Thursday, Summers, a paid contributor to Bloomberg, said that “the odds on a hard landing within the next two years are certainly better than half, and quite possibly two-thirds or more.” One of the mechanisms that would bring about a recession is the central bank’s response to elevated inflation, Summers said, adding that “we’re not going to see disinflation back toward the target range until we see unemployment rise, meaningfully.”

The publication of Summers’s comments came just two days after the consumer price index data showed the annual headline U.S. inflation rate jumping to 8.5% in March, the highest level since 1981. The rate has remained well above the Fed’s 2% target for almost a year, putting central bankers under pressure to aggressively raise target lending rates. Expectations for higher rates are rippling out throughout the economy, with the average 30-year mortgage rate soaring to 5% for the first time in a decade. Meanwhile, financial-market participants continue to debate whether inflation has hit a peak.

“If you look at history, there has never been a moment when inflation was above 4% and unemployment was below 5% when we did not have a recession within the next two years,” Summers said, according to a Bloomberg transcript. “I don’t think the idea that is still embodied in Fed forecasts — that we could have continuing supertight labor markets at 3½% unemployment, and we could have inflation come down rapidly — is a terribly plausible one.”

See: Treasury Secretary Janet Yellen says not impossible for the Fed to engineer a soft landing for the U.S. economy

Generally, economists appear to be coming around to the potential for a downturn: A Wall Street Journal survey of economists in April puts the odds of a recession in the next 12 months at 28%, up from 13% a year ago.

On Thursday, investors aggressively sold off Treasurys as they assessed the path forward on inflation, with yields rising across the board. The 10-year TMUBMUSD10Y, 2.829% and 30-year rates TMUBMUSD30Y, 2.919% jumped to their highest levels since 2018 and 2019, respectively, while the major U.S. stock indexes DJIA, -0.33% COMP, -2.14% SPX, -1.21% finished lower. The stock and bond markets were closed for the Good Friday holiday.

Recession is now the ‘most likely’ outcome for the U.S. economy, not a soft landing, Larry Summers says

Former Treasury Secretary Larry Summers tells Bloomberg Economics that the Federal Reserve "is going to have to keep going until we see disinflation."

www.marketwatch.com

 

[SuvarnaTeja]

US oiligarchy is willing to sacrifice US middleclass to fight Russia.

 

[mhosein]

I remember this guy (summers), he is the goon who bullied his way across the SEC to protect OTC-CDOs. He was on of the instrumental components of the Wall Street mafia that tipped the scales over for the 2008 economic depression to happen. Anyone who has any sense in their heads would not listen to this parasite, even if is talking about the inevitable. The American economy will keep tumbling toward a collapse, until when the only options left for the pugs in Washington DC, is to go to war with Russia and China. This country (America) was supposed to be the land of the free and the home of the brave? Its more like the land of the parasitic capitalists and the home of a nation of fools.