Larry Summers Warns Of Inflation Risk Amid Potential Surge In Wage Growth

While former Treasury Secretary Lawrence Summers said that the likelihood of a soft landing for the U.S. economy has improved compared to previous assessments, he voiced concerns over the potential resurgence of inflationary pressures.

What Happened: In an interview with Bloomberg this week, Summers highlighted the wage trend as out of sync with a 2% underlying inflation path.

“If you look at wage inflation, it was faster for the month than for the quarter, faster for the quarter than for the year,” Summers said.

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The July jobs report reflected the strength of the U.S. labor market, with businesses adding workers despite high-interest rates. The unemployment rate dropped to 3.5%, and wages grew more than expected, signaling positive consumer spending.

“I don’t think we can yet be confident that we’re not going to see a real acceleration of inflation at some point down the road,” Summers told Bloomberg, however. “That’s the thing that I’m focused on.”

“The numbers have come in a bit better over the last few months than I would have guessed,” Summers added.

The former treasury secretary also said that “it probably looks like there’s a better chance” of a soft landing in the economy — where the U.S. sees inflation decelerating while avoiding a recession — than was the case several months ago.

According to Summers, Social Security will need to be reformed to avoid big benefit cuts when it exhausts its trust fund.

“I don’t think it’s critically important whether we make those adjustments in 2023 or in 2027, or in 2029. What’s critical is to be studying and addressing the issues in advance,” he said.

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