The Federal Reserve was “disrupted” last year as inflation hit American families and it still has no idea how it will affect the economy, former Treasury Secretary Larry Summers warned Friday.
Summers, who had been the Fed’s leading inflation forecaster for the past year, stepped up his criticism of the central bank after federal data showed inflation hit a new high of 9.1% in June.
“In 2021, our central bank failed us badly,” Summers told Bloomberg. “As a result, they find themselves in a very difficult situation, mainly because they don’t have as many people to trust as they enjoyed because of their repeated unpredictability.”
“I have to say it’s not something planned,” Summers added.
Summers said the Fed’s “strategy” that shows inflation returning to the 2% target and 4.1% unemployment by 2024 is “impossible” and shows “very serious social problems” for the central bank.
Summers, former senior adviser to Democratic Presidents Bill Clinton and Barack Obama, has said that high unemployment is an inevitable result of the monetary tightening policies that the Fed must implement to stop inflation – meaning that millions of Americans could be out of a job.
As of June, the global unemployment rate was just 3.6% of what remained in the labor market.
Investors are now betting that the Fed will set interest rates higher later this month – its biggest increase in decades – as it looks to lower rates. This could increase fears that the central bank may not be able to create a “minimum slide” in the economy and avoid a recession.
Summers added that he saw the Fed lose focus last year, neglecting its primary goal of stability in favor of other tasks that were less important to its operations.
“It was talking about the environment, it was talking about social justice in a variety of ways, it was boldly rejecting concerns about inflation as short-term and it made mistakes in the central bank’s work, including leaning on monetary policy instead.” . than giving them a place to stay,” Summers said.
After the Fed meeting last month, Chairman Jerome Powell said that the bank is focused on fighting inflation – as he warned that some “surprises” are possible. Powell also said that the Fed’s commitment to lowering rates is now “unlimited.”
Earlier this week, Fed Governor Christopher Waller signaled his support for a three-quarter hike at the next meeting – although he did not rule out the possibility of a full hike.
This article was originally published on NYPost.com