Larry Summers Weighs In On 'Sobering' Data Hinting At Another, Bigger Inflation Wave Rising: Is The Fed Justified Not Dropping Guard?

As some economists are lauding the Federal Reserve for closing in on victory in its inflation fight, former Treasury Secretary and economist Larry Summers reminded Americans that the inflation scare is far from over.

The economist shared a chart of the annual U.S. consumer price inflation dating back to the 1960s. The lines tracing inflation between 1972 and 1976 and the inflation seen in the current period are almost perfectly aligned, the chart showed.

The peak inflation in the 1970s aligned perfectly with the inflation peak seen in 2022. Bureau of Labor Department statistics show that the annual inflation rate peaked at 9.1% in June 2022.

After pulling back toward the 2% in the mid-1970s, inflation began spiking and topped 11% by the end of the decade.

“This picture should be sobering to anyone convinced that we have reattained price stability,” said Summers captioning the chart. Commenting on the same chart, The Kobeissi Letter, which issues global capital market commentary, said in a post on the X social media platform, “Are we about to see another (and bigger) wave of inflation?”

See Also: Larry Summers Explains Why US Must Stay Wary Of Economically Weaker China: ‘Can Become Irrational And Dangerous’

Why It's Important: Inflation is the key variable the Fed is taking stock of as it deliberates on monetary policy. The rapid and aggressive rate increases the central bank has been implementing since March 2022 have been to combat inflation.

It is this inflation obsession that has kept the Fed from dropping its guard despite some sections of the economy wilting under the impact of successive rate hikes. Preliminary private sector activity data for August released Wednesday showed the sector is barely expanding, with manufacturing falling further in contraction territory and the services sector growth slowing.

The central bank's rate-setting committee, the Federal Open Market Committee, is scheduled to meet on Sept. 19-20 for its next meeting. The futures market is pricing in an 82.5% probability of a pause at 5.25%-5.50%.

Fed Chair Jerome Powell could shed further light on the near-term monetary policy direction when he speaks at the Jackson Hole Symposium on Friday. So far, Fed speeches unanimously suggest future rate moves would be data-dependent.

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