Larry Summers Sees Rates Topping Market Expectations: 'My Best Guess Would Probably Be...'

Former Treasury Secretary Lawrence Summers believes inflation is not yet on a secure glide path that could take it anywhere near the targeted 2% level and said he would not be surprised if the Fed Funds rate hit 6%.

"So, my guess is that rates are going to reach a higher level than the market is now expecting. That it’s going to certainly reach a much higher level than the Fed was expecting last December. And that once again, the data will record that the Fed underestimated inflation and underestimated how much policy was going to be necessary," Summers told CNN.

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The former Treasury Secretary pointed out that it could be risky because historically, "we don’t tend to be able to engineer soft landings from significant inflation."

"We will not get inflation to accelerate and skyrocket out of control. But my guess is that the process of bringing down inflation will bring on a recession at some stage as it almost always has in the past," Summers said.

U.S. markets closed mixed on Monday as investors and traders turned their attention toward Federal Reserve Chair Jerome Powell's testimony before Congress on Tuesday and Wednesday. The SPDR S&P 500 ETF Trust SPY closed 0.069% higher while the Invesco QQQ Trust Series 1 QQQ gained 0.11%.

Higher Rates: Summers also pointed out he wouldn’t be amazed if the Fed Funds rate hit 6% but said the level would probably not be his best guess.

"My best guess would probably be 5.5% or a little above 5.5%. But 6% would not surprise me greatly. And I think anybody who thinks that that’s off the radar screen is making a real mistake, given all the uncertainties that we have in our economy right now. I think what people have to do is just be prepared for a lot of things. The old advice ‘Hope for the best, but plan for the worse' I think, is the right advice for your listeners," he told CNN.

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