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‘I’m More Worried’ about Inflation Than I Was Last Night, Jobs Report Shows ‘We’re Overheating More’

On Friday’s broadcast of CNN’s “Situation Room,” Harvard Professor, economist, Director of the National Economic Council under President Barack Obama, and Treasury Secretary under President Bill Clinton Larry Summers stated that while it’s a good thing that the jobs report shows people getting jobs and wages increasing, “nothing” suggests “that we’re getting inflation under control, rather the opposite.” And that while wages increased in dollar terms, purchasing power is going down because prices are going up faster, and “you’re getting more and more of a cycle” that will make avoiding a recession and bringing down inflation harder.

Summers stated, “Look, it’s always welcome news when people are getting jobs. It’s welcome news when wages are going up. But I have to say, I don’t think it’s quite as rosy as your report suggested. The principal problem of the economy for some time has been inflation. And there’s nothing in this report to suggest that we’re getting inflation under control, rather the opposite. Yes, wages did go up half a percent last month. But that’s about a 6% annual rate, and inflation has run at about 9% over the last year. I think our core problem, which is that we have an unsustainably overheated economy that’s leading to high inflation, which is cutting people’s paychecks, that, unfortunately, has not been addressed by the news in this report. So, I’m glad to see it, and it brings good news to a large number of families. But I’m afraid we’re still in the kind of unbalanced situation that you and I have been talking on — talking about on this show for quite a long time.”

He added, “[W]hen you’ve got large numbers of vacancies, which we still do, when you’ve got such a labor shortage, which we still have, when you have wages going up rapidly in dollar terms, but not in purchasing power terms because prices are going up faster, you’re getting more and more of a cycle. And that’s making engineering the proverbial soft landing that much harder for the Fed.”

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Summers further said that while he’s pleased that the reconciliation bill and CHIPS Act are positive developments for the economy, “I’m more worried about inflation tonight than I was last night. And I think it’s misleading not to see things that way.” And that the report does not change his belief that there is a 75% chance of a recession over the next two years because “the fundamental challenge that the economy faces is a kind of overheating, and this just shows that we’re overheating more.”

Follow Ian Hanchett on Twitter @IanHanchett

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