Former Treasury Secretary Lawrence Summers said he’s concerned that a slowing in headline inflation in upcoming data will prompt the Federal Reserve to conclude its policies are working, when much more action is in fact needed.
“I’m worried we’re going to see some good news on non-core inflation,” Summers said on Bloomberg Television’s “Wall Street Week” with David Westin, ahead of consumer price data due Wednesday that are set to show a retreat in inflation, thanks especially to a slide in gasoline costs. Combined with some signs of economic slowing, the danger is that that’s “going to lead the Fed to think that things are under control.”
The US economy, however, remains in an “overheated” state, as showcased by the July employment and wage figures released Friday, Summers said. A “red hot” labour market will mean “constant or even accelerating inflation,” he said.