Summers Sees Risk of Fed Hitting the Brakes 'Very, Very Hard'

Former Treasury Secretary Lawrence Summers said that a broadening in US price pressures shows that the Federal Reserve’s monetary tightening to date is having a limited impact, raising the danger of policymakers having to do more than previously envisioned.

“The Fed’s been trying to put the brakes on, and it doesn’t look like the brakes are getting much traction,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin. “The risk is that we’re going to hit the brakes very, very hard.”

At the same time, Summers said it’s too soon to advocate for the Fed to re-accelerate its rate hikes to a 50 basis-point move at the March policy meeting. He flagged that there’s still a possibility the economy hits a sudden stop, when companies reckon with a build-up of inventories and headcount on their payrolls, and consumers deplete their savings.

“The Fed is going to have to view the situation with a lot of humility,” said Summers, a Harvard University professor and paid contributor to Bloomberg Television. It should “avoid locking itself in with any kind of strong pronouncements.”

Summers spoke days after the January consumer price index report showed a pickup in price pressures, with the headline gauge rising 0.5% from the month before, the most since October. The January jobs report also showed a surge in employment, leaving the number of job seekers still far below the number of available positions.