Former Treasury chief warns not to celebrate end of inflation prematurely

“We are heading into what is likely to be a turbulent period,” Summers said on “Wall Street Week” with Bloomberg Television’s David Westin. “I’m not sure we’re on a path to 2% inflation without more interest rate hikes than the market now anticipates.”

Summers warned that a series of factors that had been helping to reduce inflation could be reversed. One sign of that dynamic comes from used car prices, which rose 2.5% last month, the most since the end of 2021, according to an industry report Tuesday. Gasoline prices have also risen this year.

“We are going to have a series of recovery factorssaid Summers, a professor at Harvard University and a paid contributor to Bloomberg Television. For headline inflation, “it will be more difficult for there to be further reductionsin the future, he commented.

He is also concerned that rallies in financial markets in recent months have left conditions more accommodating than they should be given the yet-to-be-tightened Fed, the still-high inflation rate, and persistent labor market strength. .

Futures contracts suggest traders anticipate two more quarter-point interest rate hikes, which would lift the Fed’s benchmark to around 5.2%.

The risk is thatthis tightening cycle is not just about one more, two more, or three more 25 basis point hikes, but something more fundamentalSummers warned.

The consumer price index rose 6.5% in the year to December, well below the peak increase of 9.1% in June. Next week, the government will publish the CPI for January, which economists project at 6.2% year-on-year.

“The consensus has become very accommodating about inflation.Summers said. The rate of price increase is still “at levels that would have been unimaginable for inflation two years ago”, he indicated.