Tags: Larry Summers | Economy | Vicious Cycle | CNBC

Harvard's Larry Summers: Economy 'Caught in a Vicious Cycle'

Harvard's Larry Summers: Economy 'Caught in a Vicious Cycle'
Former Treasury Secretary Larry Summers (Getty Images)

By    |   Thursday, 22 October 2015 06:00 AM EDT

Former Treasury Secretary Larry Summers, now a Harvard professor, says the last thing the U.S. economy needs right now is higher interest rates while wages continue to stagnate amid uneven growth.

"We're caught in a vicious cycle. Incomes are too low, therefore investments are too low. ... We need to get out of that cycle," he told CNBC. He called on lawmakers to implement  tax reform and rules to discourage the kind of activism that strips cash out of companies.

And amid the continued absence of inflationary pressure, the Federal Reserve should be in no rush to increase interest rates for the first time in nine years, CNBC reported.

"Even looking out 10 years, markets are expecting little more than 1 percent inflation on the index the Fed uses for inflation," he said. "You should kick up interest rates, as has been true forever, when you have an inflation problem."

The Fed wants to see inflation increase hit its 2 percent target.

"In the face of a 'low-flation problem,' [there's] no reason to raise rates," said Summers, who also was an economic adviser to President Barack Obama and served as Treasury secretary under Bill Clinton.

But Newsmax Finance Insider Peter Morici argues that the Fed should raise interest rates right now because inflationary pressures are greater than most policymakers admit and the economy is nearing full employment.

“Remove energy prices, and the broader, the all urban Consumer Price Index commonly used to measure inflation is up nearly 1.9 percent,” said Morici, an economist and business professor at the University of Maryland.

“Keeping interest rates near zero, as the Fed has done since 2008, will do little to fix the shortage of job applicants with skills businesses are seeking, or inspire indolent adult males to lead productive lives. However, with the economy nearing full employment, easy money could set off a wage-price spiral reminiscent of 1970s double digit inflation.”

After months of speculation and delay, the chances the U.S. Federal Reserve raises interest rates this year are only 60 percent, according to Goldman Sachs chief U.S. economist Jan Hatzius, Reuters reported.

Among the biggest concerns is that financial markets have only assigned a roughly 30 percent chance of a hike this year. Some argue that alone is enough to delay.

Fed Governor Daniel Tarullo, who votes on rate decisions, said last week he doesn’t currently favor an interest rate hike in 2015 after several officials — including Fed Bank of New York President William C. Dudley — signaled the central bank would still increase rates this year as long as the economy stays on track, Bloomberg reported.

(Newsmax wire services contributed to this report).


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Former Treasury Secretary Larry Summers, now a Harvard professor, says the last thing the U.S. economy needs right now is higher interest rates while wages continue to stagnate amid uneven growth.
Larry Summers, Economy, Vicious Cycle, CNBC
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2015-00-22
Thursday, 22 October 2015 06:00 AM
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