- Larry Summers shared his latest economic views with the Financial Times.
- He talked about what he would do differently at the Fed and prospects for a soft landing.
- The former Treasury Secretary also discussed AI and another Trump presidency.
Larry Summers, who held key roles at Harvard, the Treasury Department, and now OpenAI, shared his latest views on the economy with the Financial Times.
The wide-ranging interview took place before the Federal Reserve’s meeting on Wednesday, when policymakers signaled three rate cuts in 2024.
Summers discussed prospects for a soft landing, inflation, what the Fed got right and wrong, the economic impact of artificial intelligence, and the possibility of Donald Trump returning to the White House.
Here are his best quotes:
Soft landing?
“It isn’t clear that the landing has been soft in the sense that there are a variety of problems — declining flows of credit, inverted yield curves, aspects of consumer behavior, rising evidence of credit strains — that raise the possibility that the landing won’t be soft, if there is one.”
Inflation target
“I think I would be looking for very clear evidence that inflation was durably put down, because I would be very concerned that we would confuse touching 2% with achieving 2%, and even more concerned with touching 2.7% and regarding that as a basis for easing.”
The Fed’s mistake
“I think the Fed has done itself considerable damage by putting as much emphasis on forward guidance and transparency as it has,” Summers said, noting that Fed communication should be “vague and oracular.”
“I would be endeavoring to not constrain myself substantially with any set of predictions or attempt to lay out my reaction function, because I would recognize that events would come in ways that I wouldn’t anticipate, and that I would run the risk of trouble. Another way to say it is: forward guidance is a bit of a fool’s game. The market doesn’t especially believe it and the Fed feels constrained by it down the road.”
Artificial intelligence
“It remains to be seen just how transformative artificial intelligence will be for the macroeconomy in the next several years. I do think the ultimate long run impact, whether it’s once a decade, once a generation, once a century, or once a millennium, is going to be very profound.”
A Trump re-run
“When you have a president who challenges the results of elections and brags about what he could do in one day as a dictator, it is not something that can be completely relied on. That is a profound threat to our long-run prosperity, and therefore short-run asset prices, economic behavior, hiring, investment and everything else.”
