Former Treasury Secretary Larry Summers said in an interview Monday that the U.S. economy could be facing a “Wile E. Coyote moment” as it tries to tame inflation with interest rate hikes.
During an appearance on “CNN This Morning,” Summers told co-anchor Poppy Harlow that he expects the Federal Reserve to raise its benchmark interest rate higher than expected.
“It’s a risky thing because historically we don’t tend to be able to engineer soft landings from significant inflation,” Summers said. “And so my guess is that at some point the Fed will push and push.”
“We don̵[ads1]7;t want inflation to accelerate and spiral out of control,” Summers added. “But my guess is that the process of bringing down inflation will lead to a recession at some point, as it almost always has in the past.”
Summers, who has also served as director of the National Economic Council and chief economist at the World Bank, said the U.S. economy could see a “Wile E. Coyote moment” running through thin air as markets “hit a bubble” sometime months.”
“Right now, companies are holding on to workers because there’s been a labor shortage for the last couple of years, but if that starts to go away, they’ll feel less pressure to hold on to workers,” he said.
“It could be that interest rates will eventually work their way through the system and, you know, it will have a significant effect on employment, for example building houses. So you have a number of dynamics that can come into play.”