Larry Summers says a US recession is very likely, as the market braces for weak Q2 growth figures

  • Former Treasury Secretary Larry Summers has said there’s a “very high likelihood” of a US recession.
  • His comments to CNN came ahead of the release of second-quarter US growth figures and a key Fed decision.
  • He said Sunday the Fed is highly unlikely to be able to pull off a so-called soft landing as it hikes interest rates.

Former Treasury Secretary Larry Summers has said there’s a “very high likelihood” of a US recession, speaking ahead of the release of second-quarter GDP figures and a key Federal Reserve decision this week.

Summers told CNN’s “Fareed Zakaria GPS” the Fed is unlikely to be able to engineer a so-called soft landing — that is, just a modest economic pullback — as it raises interest rates to deal with the strongest inflation in 41 years.

“I think there is a very high likelihood of recession when we’ve been in this kind of situation before,” Summers said Sunday.

“Recession has essentially always followed when inflation has been high and unemployment has been low. Soft landings represent a kind of triumph of hope over experience. I think we’re very unlikely to see one.”

Summers, who was Treasury Secretary under President Bill Clinton, did not specify when he expects a recession to arrive. But his comments came ahead of the release of preliminary second-quarter gross domestic product figures due out Thursday, which could show the US has already entered a recession by one measure.

US GDP contracted by 1.6% on an annualized basis in the first quarter, an unexpectedly poor performance.

Economists estimate GDP grew 0.5% in the second quarter, according to a Bloomberg poll. Yet some, including Bank of America and Deutsche Bank, are expecting a contraction.

By one common definition, two consecutive quarters of falling GDP would mean the US is in a recession. However, in the US, the official arbiter of a recession is the National Bureau of Economic Research. It defines such an event as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

Summers, who has long predicted a sharp rise in inflation and a major slowdown in growth, said the government could be doing more to tackle price rises and take the burden off the Fed.

“I think we do need strong action from our central bank,” Summers said. Yet he added: “We need the government to do the other things that it can do.”

Summers, who served as an advisor to former President Barack Obama, said the government should bring down the budget deficit and focus on increasing energy production.

“If we continue with the kind of ostrich policies we had in 2021 there is going to be much, much more pain later,” he said. “I think that’s increasingly appreciated and that improves our prospects, but I’m afraid I can’t be confident that we’re going to get through this without a recession.”

The Fed is expected to hike interest rates by 75 basis points on Wednesday, hot on the heels of the first 75 point hike since 1994 last month.

Leave a Reply

Your email address will not be published. Required fields are marked *