Dem Economist: ‘Markets Could Crash’

( – Even the left is worried about the direction of the American economy, as prominent Democrat economist Larry Summers restated his concerns this week about the current state of inflation under Joe Biden’s administration.

Explaining his worries, Summers stated that the actual inflation rate might be significantly higher than what the administration is letting on.

Summers’ cautionary stance follows a recent Consumer Price Index report that revealed a 3.5% inflation increase over the past year.

The figure has raised eyebrows since it is the biggest year-over-year escalation observed since last September.

The Bureau of Labor Statistics highlighted that this inflation surge is the result of increased costs in various sectors including car insurance, groceries, electricity and gas.

This economic pressure extends to new parents and pet owners, who saw a 30% hike in baby food prices and a 23.7% rise in pet food prices since 2021.

Summers’ comments also cast doubt on Treasury Secretary Janet Yellen’s recent assessment of the strength of household finances. Actually, he suggests that persistent inflation could make any efforts to reduce interest rates difficult.

During an interview with Bloomberg News, Summers said he “was not hugely surprised by the numbers,” blaming them on the combination of rapid economic growth, low unemployment, substantial budget deficits and soft financial conditions.

He further explained that, according to a more precise measure excluding temporary variations and housing costs, inflation is actually advancing at a rate exceeding 6%, with shorter-term rates outpacing longer-term ones.

This analysis suggests that interest rates may need to rise further, meaning that “markets could crash” and that Americans’ possibilities of affording homes and cars could be potentially impacted.

Summers suggested that the Federal Reserve might have to consider increasing rates again, rather than cutting them, to avoid repeating past mistakes that underestimated inflation risks.

He compared the current inflation trajectory under Biden to that experienced during President Jimmy Carter’s tenure, which means that the worst of inflation might still be ahead.

“It is sobering to recall that the shape of the past decade’s inflation curve almost perfectly shadows its path from 1966 to 1976 before it accelerated in the late 1970s,” he concluded.

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