The Fed's interest-rate hike campaign is 'not getting much traction,' raising the risk that the U.S. hits the brakes 'very, very hard,' Larry Summers said.
much higher than previously forecast — and keeps them elevated for longer, according to Summers. He projected that the central bank will take longer to get to its peak policy rate or that it will once again pick up the pace of hikes.
"The risk is that we're going to hit the brakes very, very hard," he said. "And then when we hit the brakes very, very hard, that's going to kick in at the same time that some of those negative cyclical dynamics about rising savings and excess inventory and so forth are kicking in." Jerome Powell, chairman of the U.S. Federal Reserve, attends a news conference in Washington, D.C., on Sept. 21, 2022.
He warned that the central bank needs to move carefully, given the lagged effect of higher interest rates. "When your brakes don't get much traction, two things happen. You can be moving too fast – that's the inflation pressure – and you can be setting yourself up for some kind of collision or crash down the road," Summers said. "Both of those things, I think, are real risks in this environment.
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