Summers Says US Soft Landing ‘Very Real Possibility’ Now

summers says us soft landing ‘very real possibility’ now

Lawrence Summers

(Bloomberg) — Former Treasury Secretary Lawrence Summers said he sees the potential for a soft landing in the US economy as inflation glides down while the labor market remains elevated.

“A soft landing probably looks more likely today than it has at any point since” 2021, Summers, a Harvard University professor, said at an Economic Club of New York event Thursday. A soft landing isn’t assured, he added, but “certainly a very real possibility.”

Summers, a contributor to Bloomberg TV, said that the Federal Reserve’s cycle of hikes dampened demand without clobbering growth, with spending that’s become less sensitive to interest rates.

While a soft landing is in sight, risks remain. The recent bout of cooling inflation has more to do with prices that had previously shot up exponentially than an “achievement of fundamentally low inflation,” he said, adding that wage growth and labor cost growth “looks distinct above what would go with a 2% inflation target.”

After a year of inflation easing steadily, consumer prices rose the most in three months in December as service and goods prices increased. The labor market also remains generally healthy, with jobless claims and the unemployment rate historically low, keeping wages elevated.

Meanwhile, investors and economists are expecting the economy to cool this year, prompting the Fed to support growth. Markets are pricing in about 140 basis points of interest rate cuts in 2024, likely beginning in March.

Those forecasts may be too aggressive, Summers said, adding that two to three cuts are more likely than current expectations.

“Markets are a bit ahead of themselves on how much cutting the Fed should do or likely will do over the next few months,” he said.

Summers has previously said that investors are underestimating inflation risks, which could hamper expectations for central bank policy.

Summers was speaking with Columbia Business School economics professor and former head of the White House Council of Economic Advisers Glenn Hubbard.

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