February 3, 2023

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Larry Summers Says Fed Will Need to Boost Rates More Than Markets Expect

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(Bloomberg) — Former Treasury Secretary Lawrence Summers warned that the Federal Reserve will probably need to raise interest rates more than markets are currently expecting, thanks to stubbornly high inflationary pressures.

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“We have a long way to go to get inflation down” to the Fed’s target, Summers told Bloomberg Television’s “Wall Street Week” with David Westin. As for Fed policymakers, “I suspect they’re going to need more increases in interest rates than the market is now judging or than they’re now saying.”

Interest-rate futures suggest traders expect the Fed to raise rates to about 5% by May 2023, compared with the current target range of 3.75% to 4%. Economists expect a 50-basis point increase at the Dec. 13-14 policy meeting, when Fed officials are also scheduled to release fresh projections for the key rate.

“Six is certainly a scenario we can write,” Summers said with regard to the peak percentage rate for the Fed’s benchmark. “And that tells me that five is not a good best-guess.”

Summers was speaking hours after the latest US monthly jobs report showed an unexpected jump in average hourly earnings gains. He said those figures showcased continuing strong price pressures in the economy.

“For my money, the best single measure of core underlying inflation is to look at wages,” said Summers, a Harvard University professor and paid contributor to Bloomberg Television. “My sense is that inflation is going to be a little more sustained than what people are looking for.”

Read More: Job Market Is Too Tight for Fed Comfort as Labor Pool Shrinks

Average hourly earnings rose 0.6% in November in a broad-based gain that was the biggest since January, and were up 5.1% from a year earlier. Wages for production and nonsupervisory workers climbed 0.7% from the prior month, the most in almost a year.

While a number of US indicators have suggested limited impact so far from the Fed’s tightening…



2022-12-02 19:51:58

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