Summers warns Fed not to be too confident it has tools to combat recession
In tweet storm, former Treasury Secretary crashes Jackson Hole party
Former U.S. Treasury Secretary Larry Summers isn’t on the agenda to speak at this year’s Federal Reserve economic symposium in Jackson Hole, Wyoming. But he didn’t let that stop him.
In a series of tweets, Summers said the Fed should not be confident it has the tools to combat the next recession and called for a “revolution in Fed” thinking.
Summers was once President Barack Obama’s top pick to lead the Federal Reserve, but his nomination was blocked by progressive Senate Democrats like Sen. Elizabeth Warren of Massachusetts. Obama then tapped Janet Yellen for the top Fed spot. Since then, Summers has become a leading outside commentator on monetary policy.
Summers was also a director of the National Economic Council under President Obama and chief economist at the World Bank.
In his tweets, Summers said the economies of Europe and Japan are now stuck in black holes — negative interest rates are expected for a generation and the U.S. economy is only one recession away from joining them.
In a world where the U.S. 10-year Treasury yield TMUBMUSD10Y, +0.91% is 1.50%, Fed officials confidence in their toolkit is “misplaced,” he said.
Summers said the Fed’s traditional recession-fighting tool of lowering short-term interest rates may be counterproductive in this new global economy of low interest rates and economic stagnation.
Comparing the Fed’s current challenge to the central bank’s famous battle with inflation in the late 1970s, Summers called for revolution in monetary policy thinking.
But he said he wasn’t so hopeful.
