Former US Treasury Secretary Lawrence Summers said he’s more optimistic about the US economy and its ability to dodge a recession than just a few months ago, although he warned the Federal Reserve still faces a tricky task.
(Bloomberg) — Former US Treasury Secretary Lawrence Summers said he’s more optimistic about the US economy and its ability to dodge a recession than just a few months ago, although he warned the Federal Reserve still faces a tricky task.
“We have to recognize the figures are better than what someone like me would have expected three months ago,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin in Davos. “It’s still a very, very difficult job for the Fed, but the situation does look a bit better.”
US inflation continued to slow in December, with the overall consumer price index declining for the first time in 2 1/2 years. The measure was still up 6.5% from a year earlier, although that was the lowest since October 2021.
Summers, who is a paid contributor to Bloomberg TV, said he’s “still cautious, but with a little more hope” the US can avoid a recession.
“Soft landings are the triumph of hope over experience, but sometimes hope does triumph over expectation,” he said. “We’ve seen some slowing of inflation, but continued strength” in the economy, he said.
Debt Limit
“I still think it’s going to be hard because we need a substantial amount of disinflation that goes beyond volatile components receding,” he added.
Separately, the former Treasury chief urged lawmakers to support an increase in the federal debt limit rather than conduct a drawn-out political fight that raises fears of a default.
“This is potential tragedy as farce,” he said. “It would be catastrophic and incomprehensible for the United States to default,” he said, joining current Treasury Secretary Janet Yellen in warning of the consequences of any payments default.
Republicans are calling for deep spending cuts in return for agreeing to raise the debt limit. The Democrats have demanded an increase without conditions, as has been done in the recent past.
US and China
“At the end of the day, we will meet our obligations and not cause substantial disruption but God, I wish we could move past this,” Summers said.
Speaking hours after Yellen and China’s top economic official had their first face-to-face meeting, Summers also said “it’s always better to be talking.”
“The right approach is small victories,” he said of the relationship between the US and China. “We’re not going to have a broad rapprochement or transformation. We can make progress if we set our expectations and aspirations right to small victories.”
–With assistance from Craig Stirling.
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