Larry Summers: Fed Confidence in Economy Having Soft Landing Is ‘Tooth Fairy Kind of Stuff’

Former Treasury Secretary Lawrence Summers said Friday on MSNBC’s “Andrea Mitchell Reports” the Federal Reserve’s confidence that interest rate hikes will avoid a recession and give the U.S. economy a soft landing is “tooth fairy kind of stuff.”

Mitchell said, “Let’s talk about the economy, the basic economy. You said it’s complicated. Complicated could be a euphemism, for it’s not going to turn around anytime soon.”

Summers said, “We are getting bad news on inflation. We are getting bad news on economic strength. The bad news on inflation is coming in the way of the wage and price increase data. The bad news on economic strength is coming on terms of the spending data. What that’s telling us is, frankly, what I and many others have been saying for a long time, that the Fed and, to some extent, the administration, but much more the Fed’s confidence in a soft landing is tooth fairy kind of stuff.”

He continued, “We need, in my view, to prioritize inflation because if we don’t prioritize inflation, we’re going to have higher and higher inflation and a more and more stagflation situation. We need to prioritize inflation. If we do, we’re going to very likely have a meaningful economic downturn.”

Mitchell said, “You would assume it’s more likely than not we’re going to have a recession if we’re not already there?”

Summer said, “I think the odds are very high, perhaps over three-quarters, that in the next year or two, we will have a recession. I think that’s just what happens when you have an economy that is as overheated as our economy was allowed to become.”

Follow Pam Key on Twitter @pamkeyNEN

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