After a shocking jobs report, Larry Summers, treasury secretary under Bill Clinton, said he is more encouraged the Fed can pull off a soft landing, but cautioned it is a “big mistake” to think the economy is “out of the woods” on Fareed Zakaria GPS Sunday.
Friday’s job’s report saw an astonishing 517,000 jobs added in January and unemployment tick down to 3.4%, the lowest since 1969. Economists had predicted 185,000 jobs, expecting a slower jobs market after almost a year of aggressive rate hikes from the Federal Reserve.
The Fed once hiked interest rates less aggressively this week, reflecting a sense inflation is cooling. It brings up the question: Can the United States pull off a soft landing, bringing down inflation without triggering a recession?
Summers said it “looks more possible that we’ll have a soft landing than it did a few months ago,” but he has continued fears about inflation indicators that have come back to earth, but are still too high for his liking.
“They’re still unimaginably high from the perspective of two or three years ago, and that getting the rest of the way back to target inflation may still prove to be quite difficult,” Summers said.
Zakaria asked if triggering a recession was worth it to bring down inflation, if 3 to 3.5% inflation rates could become the norm.
Summers said it’s a trade-off between short run reductions in unemployment, and permanent changes in inflation.
“The benefit we can get from pushing unemployment low is on almost all economic theories and likely not to be a permanent one,” Summers said. “But if we push inflation up and those issues become entrenched, we’re going to live with that inflation for a long time.”
The US has about 3 million people who have just stopped looking for work. Summers attributed it to older people who decided to retire earlier than normal patterns would suggest during COVID.
He said there is a “grand reassessment” of the workplace post-COVID.
“You don’t get to be a CEO if you don’t love being in the office,” Summers said. “And so CEOs want all their people to come back and be working, but lots of people like their dens better than they like their cubicles.”
Summers also had advice for President Joe Biden as a debt ceiling crisis brews in Washington.
“I would advise him that it’s not a viable strategy for the country to default on obligations,” Summers said. “That’s the stuff of banana republics, and that he’s not going to engage in any of that stuff.”
The United States has an “utterly bizarre system” where Congress votes on budgets and then separately has to authorize paying the bills incurred by those budgets, Zakaria pointed out, adding a crisis could be on the horizon because House Republicans don’t want to pay the bills until President Biden agrees to spending cuts, even though budgets were set by both parties.
Biden should insist “Congress do its job and approve the borrowing to finance the spending.”
Summers noted it only takes a few responsible Republicans to raise the debt limit.
“That some in the Republican Party may bow to the demands of the extremists does not mean that the President of the United States should do that.”