Summers: US Needs 5% Joblessness for 5 Years to Curb Inflation

Former Treasury Secretary Lawrence Summers says the only way to tame the red-hot 8.6% inflation rate in the U.S. is for unemployment to rise above 5% for a protracted period of time.

“We need five years of unemployment above 5% to contain inflation—in other words, we need two years of 7.5% unemployment, or five years of 6% unemployment, or one year of 10% unemployment,” Summers said in a speech in London Monday, Bloomberg reports.

“There are numbers that are remarkably discouraging, relative to the Fed Reserve view,” Summers said. “The gap between 7.5% unemployment for two years and 4.1% unemployment for one year is immense. Is our central bank prepared to do what is necessary to stabilize inflation if something like what I’ve estimated is necessary?”

Last Wednesday, when the Federal Open Market Committee (FOMC) raised interest rates by 75 basis points, or 0.75%—the biggest move by the U.S. central bank since 1994—Fed Chairman Jerome Powell said policymakers expect inflation to decline from its current 8.6% to 3.4% by the end of next year, to near 2% by year-end 2024.

Unemployment in the U.S. stood at 3.6% in May. Median forecasts by the Labor Department show unemployment rising to 4.2% by 2024. Inflation is at the highest it has been since 1981.