Larry Summers Nailed Inflation. But Is He Right on What Comes Next?


In February 2021, Larry Summers was proper and I used to be flawed. The previous Treasury secretary warned that President Biden’s stimulus bundle was far too massive and would result in far too excessive inflation. I used to be much less frightened and thought the Federal Reserve can be prepared to boost rates of interest to go off any inflationary downside. My religion was misplaced, and it took me until June to realize my mistake. The Fed waited one other 9 months to behave.

Markets are lastly centered on whether or not the Fed’s newfound hawkishness will begin a recession—Prof. Summers thinks it will. There’s a longer-term query that issues, too: As soon as inflation is lastly introduced below management, can we return to the post-2009 secular stagnation, or will there be a brand new paradigm? Right here once more I discover myself disagreeing with Prof. Summers, who thinks the chances are we return to the established order ante. I believe there’s a higher probability of a brand new financial regime, with extra inflationary stress and better actual rates of interest.


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