Former U.S. Treasury Secretary Lawrence Summers has been warning about the dangers of an inflationary spiral in the U.S. economy for more than a year, driven largely by what he saw as excessive pandemic relief spending under the Biden administration. Now he’s predicting the Federal Reserve will have to raise rates more dramatically to deal with the problem.
“Ultimately we’re going to need 4-5% interest rates, levels they’re not even thinking of as conceivable,” Summers told Bloomberg Television Friday. “They’re recognizing that they’re behind the curve. They’ve still got a long way to go.”
The problem is simple, Summers says: To beat inflation, the Fed has to raise interest rates higher than the rate of inflation, which he thinks will persist at levels above the Fed’s 2% target rate.
“If you want to tighten policy you have to raise interest rates by more than…