Former Treasury Secretary Lawrence H. Summers believes if one looks at the history of developed nations in the 1970s, it is clear that prospects of bringing down inflation are not very encouraging.
What Happened: “The history of developed countries since 1970 is very discouraging about the prospects of bringing down 8 percent inflation,” Summers tweeted.
Historical Experience: The former Treasury Secretary also explained how historical experience may be too optimistic a guide to current times, especially when labor markets are very tight.
"Populism has never been stronger. Labor markets are super tight. Government debt ratios are at peak levels. Globalization is certainly no longer spreading and may be receding,” Summers said in his tweet.
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The U.S. Federal Reserve is set to announce its monetary policy next week, and market participants have already started factoring in a relatively less aggressive central bank.
The SPDR S&P 500 ETF Trust SPY has gained 2.55% over the last month, while the Vanguard Total Bond Market Index Fund ETF BND has shed over 1.61%.
On Consensus: Summers also cited a chart to explain how consensus about inflation coming down in present times is outside the range of normal historical experience.
The former Treasury Secretary believes inflation will persist for some time. “We don’t have any experience with soft landings from high inflation without recessions,” Summers said.
Photo: International Monetary Fund on Flickr
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