Larry Summers Found Fed's Rate Hike Pause 'A Little Bit Confusing' — Feels Policy Meet Was Driven By 'Internal Political Dynamics'

Former Treasury Secretary Lawrence Summers reportedly said Federal Reserve policymakers appeared to settle on an inconsistent set of actions this week based on internal dynamics at the apex institution.

"I found the Fed's action a little bit confusing," Summers told Bloomberg Television. He also noted while there were arguments for not hiking rates on Wednesday, those wouldn't be consistent with adding two rate increases to the outlook for the rest of 2023 and increasing the growth forecast — as the Fed did.

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"This meeting felt like it was driven as much by the internal political dynamics of the Fed as by any consistent and coherent reading of the economic situation," said Summers. "And that was a bit disturbing."

Fed Policy: The central bank announced a pause in its rate hike campaign during Wednesday's policy but indicated it could raise rates by another 50 basis points this year. According to the report, Summers stated "the Fed has probably got to maintain a posture of moving towards restraint" with its policy, given evidence of economic strength

However, economic data released Thursday did support the argument the Fed is nearing its rate hike campaign. The number of Americans applying for unemployment benefits increased by 262,000, in the week ending June 10, flat from a revised higher 262,000 the previous week and more than the projected 249,000. The SPDR S&P 500 ETF Trust (NYSE:SPY) closed 1.24% higher while the Invesco QQQ Trust Series 1 (NASDAQ:QQQ) rose 1.19% on Thursday.

Summers also argued that there's no clear evidence of a slowdown in inflation coming. "I don't think it's very serious what the precise timing is" with regard to hiking rates further, he said.

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