Larry Summers And Peter Schiff Warn Of Rising Inflation Risks As Markets Slash Fed Rate Cut Expectations: 'Most Sensitive Moment'

Former Treasury Secretary Larry Summers warned of heightened inflation risks, citing tight labor markets and potential policy shifts, as markets dramatically scaled back expectations for Federal Reserve rate cuts in 2025.

What Happened: “This is probably the most sensitive moment we’ve had for an escalation in inflation since the policy errors of 2021,” Summers said on Bloomberg Television’s Wall Street Week, pointing to January’s strong wage growth data and tightening labor market conditions.

This is probably the most sensitive moment we've had for an escalation in inflation since the policy errors of 2021 that set off the significant inflation that we had.https://t.co/A1Y5cUvhbN
— Lawrence H. Summers (@LHSummers) February 11, 2025

Economist Peter Schiff echoed inflation concerns, arguing on social media platform X that the Federal Reserve’s previous 40% increase in money supply inherently creates inflation. “It’s not that money supply growth could cause inflation, but that, by definition, it is inflation. It’s because the Fed creates inflation that prices go up.” Schiff wrote.

Meanwhile, Fed Chair Jerome Powell maintained a cautious stance during Tuesday’s Senate testimony, emphasizing that policymakers are in no “hurry” to adjust rates while inflation remains “somewhat elevated.”

Fed Chair Powell said a 40% increase in the money supply in a short period of time could possibly cause some inflation. It's not that money supply growth could cause inflation, but that, by definition, it is inflation. It's because the Fed creates inflation that prices go up.
— Peter Schiff (@PeterSchiff) February 11, 2025

The S&P 500, tracked by SPDR S&P 500 ETF SPY, has risen 4.11% over the past month, trading at $605.31 as of Tuesday. The Nasdaq-100, tracked by Invesco QQQ Trust QQQ, is up 4.44% in the same period, trading at $527.99. Meanwhile, Dow Jones Industrial Average Futures are at 44,678.00 USD, down 30.00 points or 0.06% today, according to data from Benzinga Pro.

Why It Matters: Recent economic indicators have fueled these concerns. The University of Michigan’s consumer sentiment survey showed one-year inflation expectations jumping to 4.3%, while the U.S. five-year breakeven rate climbed to 2.59%, up from 1.89% in September.

Bank of America economist Aditya Bhave suggested that “the Fed’s rate-cutting cycle is over,” as January’s employment data showed the labor market stabilizing around full employment. The unemployment rate unexpectedly dropped to 4.1%, with wage growth accelerating despite weather-impacted headline numbers.

Goldman Sachs economists noted that markets might be underpricing inflation risks, particularly given the potential impacts from proposed tariff increases and uncertainty in trade policy outcomes.

Read Next: