A former Obama economic adviser has become a prominent Democratic critic of the Biden administration’s handling of the inflation surge.
Former Treasury Secretary Larry Summers, who served as head of the National Economic Council during the Obama administration, slammed the Federal Reserve and Biden administration’s response to the surge in prices.
“After years of advocating more expansionary fiscal and monetary policy, I altered my view this past winter, and I believe the Biden administration and the Federal Reserve need to further adjust their thinking on Inflation today,” Summers wrote in an op-ed in The Washington Post Monday.
Summers criticized Fed Chair Jerome Powell’s recent remarks when he called inflation transitory at a speech in Jackson Hole in August.
While Powell expected prices to increase in select sectors, Summers pointed to inflation of commodity goods excluding food and energy, which increased 12% year over year.
Inflation surged to its highest record in 30 years, with the Consumer Price Index growing 6.2% on a year-over-year basis, the Bureau of Labor Statistics announced Wednesday.
Key inflation indicators, like used cars, were also expected to come down, according to Powell. Instead, used car prices grew more than 30% year over year, while new cars, another important indicator, increased 17% year over year.
Market inflation expectations for the term of the next Federal Reserve chair was around 2.5% when Powell spoke in August. Since then, expectations grew to 3.1%, according to Summers, while consumer confidence plummeted to a ten-year low due to inflation fears.
Additionally, Summers was on CNN’s “Cuomo Prime Time” Thursday, saying the White House is “behind the curve” fighting inflation.
“I think that the policymakers in Washington, unfortunately, have almost every month been behind the curve,” Summers told CNN Host Chris Cuomo.
“They said it was transitory; it doesn’t look so transitory. They said it was due to a few specific factors; doesn’t look to be a few specific factors,” Summers said. “They said when September came and people went back to school, that the labor force would grow, and it didn’t happen.”
To combat the growing inflation, the Fed announced on Nov. 3 that it would begin scaling back its monthly bond purchases by $15 billion in November from its current $120 billion monthly purchases, the Daily Caller News Foundation reported.
“Inflation is elevated, largely reflecting factors that are expected to be transitory,” the Fed said in a statement. “Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to a sizable price increase in some sectors.”
Summers tweeted Monday, arguing that the growing inflation could bring former President Donald Trump back to the White House.
“Excessive inflation and a sense that it was not being controlled helped elect Richard Nixon and Ronald Reagan, and risks bringing Donald Trump back to power. While an overheating economy is a relatively good problem to have compared to a pandemic or a financial crisis, it will metastasize and threaten prosperity and public trust unless clearly acknowledged and addressed,” Summers said.
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