Former Treasury Secretary Larry Summers said the Federal Reserve will likely need to raise interest rates more than the market anticipates as prices remain high but grew at slower rates in October.
Summers told Bloomberg Television’s “Wall Street Week” with David Westin that the economy has a “long way to go” before inflation is under control.
“My sense is that inflation is going to be a little more sustained than what people are looking for,” he said.
The Fed has raised interest rates by 0.75 percentage points four times in a row in successive meetings, but Chairman Jerome Powell said it will likely raise rates by a smaller amount at its meeting later this month.
Still, he said the Fed needs “substantially more evidence to get comfort” that inflation is declining. Consumer prices rose at a slightly slower pace in October than expected despite Americans increasing their spending.
Powell has said the Fed will continue to raise interest rates as much as necessary to get inflation under control. Officials are aiming for inflation to get back to a 2 percent annual rate.
The stock market surged after Powell’s comments that the interest rate hikes will slow down.
Some financial experts have expressed concerns about the Fed raising rates too much too quickly and causing an economic downturn. Reports have indicated rising interest rates have not had a major effect on the overall economy, but Summers said the effects of the increases can happen suddenly.
“At a certain point, consumers run out of their savings, and then you have a Wile E. Coyote kind of moment,” he said, referring to the cartoon character who falls off cliffs while chasing Road Runner.
Summers said a “real risk” for an “avalanche aspect” exists but added that the Fed should not change its target of 2 percent for inflation.