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Larry Summers: The Fed is ‘well behind’ the curve on inflation and should stop stimulus ASAP

By Matt Egan, CNN Business

Economist Larry Summers called on the Federal Reserve Wednesday to take immediate action to catch up to inflation.

“There are lots of reasons to suspect the Fed is well behind the curve,” Summers, a former senior official in the Clinton and Obama administrations, said during a virtual event.

Summers, who has been outspoken over the past year in warning about the risks of high inflation, pointed to the 7.5% year-over-year jump in consumer prices and evidence of a tight labor market.

“I suspect next month it will get worse rather than better,” Summers said during the event, hosted by No Labels, a bipartisan problem-solving group.

Summers called for the Fed to swiftly end its bond-buying stimulus program, which was launched in March 2020 when Covid erupted. Known as quantitative easing, or QE, the program is arguably making inflation worse given that the US economy no longer needs the emergency support.

“I think the Fed should immediately, like tomorrow, end QE,” he said. “I think the act of ending it immediately would have useful symbolic significance in demonstrating they understand they have worked their way behind the curve.”

Fed officials have signaled they plan to wrap up QE next month and raise interest rates off rock-bottom levels.

Summers called for a new “rule” on federal government spending for the next few years that precludes deficit-financed spending.

New spending should be “fully paid for,” Summers said.

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