He cautions that negative interest rates could create a ‘black-hole’ scenario.
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Larry Summers, former U.S. Treasury secretary, has long been a critic of Trump’s trade and monetary policies.Yet another well-known economist has warned of a looming downturn: Harvard University professor and former treasury secretary Larry Summers placed the odds of a recession before 2021 at nearly 50%—and described a “black-hole scenario” in which rates could get stuck at zero., Summers delivered a grim outlook for U.S.
Despite the stock market’s resilience so far this year, Summers emphasized a weakening U.S. manufacturing sector, ongoing trade tensions with China and slowing global economic growth as key challenges. He further highlighted how strong employment figures are a risk—since they can’t get any better, while consumer confidence, on the other hand, is too volatile to provide an effective bulwark for recession fears.
The real risk, Summers said, is of a “black-hole scenario” where both economic growth and inflation rates could decrease to nearly zero and subsequently remain very low. Wall Street JournalSummers also called for “significantly more easing” in the Federal Reserve’s monetary policy—although he questioned whether that would be enough.“The experience in Japan, Europe, or even the U.S., is that once you get into a near-zero interest-rate regime, it’s kind of a black hole.
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