Larry Summers Calls For Hike Of 50 Basis Points In July If Fed Pauses In June, Elon Musk Says 'That Would Be Insane'

Former U.S. Treasury Secretary Larry Summers recently weighed in on the rate outlook in light of the stronger-than-expected May non-farm payroll numbers released on Friday.

Economy's Robustness: The May non-farm payrolls report was positive due to the 339,000 jobs added last month and the upward revision to the previous two months' numbers, Summers said in an interview with Bloomberg on Friday. He shrugged off the uptick in the jobless rate, explaining that May typically has all seasonal adjustments, especially as students out of college look for summer jobs.

“I think the general tendency of the data has been very much towards saying that the economy, at least for this while has a fair amount of robustness in it going beyond the jobs numbers out this week,” Summers said.

Rate Outlook:  With the debt ceiling impasse now over and employment numbers coming in strong, the lower-risk strategy for the Fed is to raise rates in June, Summers said. “And if they don't raise rates in June, I think they have to be open to the possibility that they may have to raise rates by 50 basis points in July if the economy continues to stay way hot and inflation figures are robust,” he said.

The former Treasury official noted that several Fed officials are leaning toward a 25 basis points hike every other meeting. Conceding that the banking crisis swayed him toward supporting a pause, Summers said that the Fed should be mindful of the risk of overheating the economy.

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Musk, Sacks React: Tech entrepreneur and investor David Sacks, however, disagreed with Summers’ stance.

"Summers is already talking up a 50bp rate hike in July. That won't be good for CRE, banks, or stocks," he tweeted on Friday.

Responding to Sacks' comments, Tesla CEO Elon Musk tweeted, “That would be insane.”

Sacks and Musk recently warned of the collapse of the commercial real estate market and a potential house price collapse.

Read Next: Jim Cramer On ‘Fed Heads’ That Want To Raise Rates: They Want To ‘Tip Us Into A Definitive Recession’

Photo: Monika Flueckiger via Wikimedia Commons