Larry Summers: US economy could face a ‘Wile E. Coyote moment’

Former Treasury Secretary Larry Summers said in a Monday interview that the U.S. economy could face a “Wile E. Coyote moment” as it seeks 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 will raise its benchmark rate higher than expected. 

“That’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 will not get inflation to accelerate and skyrocket out of control,” Summers added. “But my guess is that the process of bringing down inflation will bring on a recession at some stage, as it almost always has in the past.”

Summers, who has also served as director of the National Economic Council and chief economist of the World Bank, said that the U.S. economy might see a running-over-thin-air “Wile E. Coyote moment” as markets “hit an air pocket in a few months.”

“Right now businesses 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, then they’re going to feel less pressure to hold on to workers,” he said. 

“It may be that interest rates are going to eventually work their way through the system and, you know, that’s going to have a significant effect on employment, for example, building houses. So, you’ve got a variety of dynamics that could kick in.”