On Wednesday’s broadcast of CNN’s “Situation Room,” Harvard Professor, economist, Director of the National Economic Council under President Barack Obama, and Treasury Secretary under President Bill Clinton Larry Summers said that bringing inflation down to the levels we’ve gotten used to recently will “require quite significant dislocation in the economy” and that the increase in core inflation “is not a situation that is in good and satisfactory control.”
Summers stated, “My guess is that inflation will be lower next year than it was this year. It quite likely will be lower in 2024 than in 2023. But, I think it’s not going to be easy to bring inflation back to the kind of levels that we’ve become accustomed to in recent decades. We have let the genie out of the bottle. And I think it is going to require quite significant dislocation in the economy to get it back. I think it’s welcome that the Fed is signaling a very strong desire to move with respect to inflation and to tighten. But it is much later than it should have been, and there’s going to be a substantial cost for that.”
He added, “My guess would be that there will be some decline as the year goes on. I think, as your report illustrated, gas prices have come down in the last several weeks and that was not reflected at all in the CPI report today. But, Wolf, I think the more fundamental issue is not gas prices, which will always fluctuate and will fluctuate associated with events like the Ukraine war. I think the more fundamental issue is what — the vast majority of the goods and services that people are buying and what’s happening with them. And there, we have, for many years, basically not been able to think about inflation very much. Yes, prices go up a couple percent a year. But it’s just not a big thing for people. And I think we’ve lost that. And we’ve lost it in the last couple of years. And it’s terribly, terribly important that we get it back. But experience suggests that getting it back takes time and is not easy. I, like most economists, prefer to look at what’s called core inflation. That’s the products that aren’t like oil or wheat bouncing all over the place each month. And core inflation was faster last month than over the previous three months, faster over the previous three months than over the previous six months, and faster over the previous six months than over the past — over the previous 12 months. That is not a situation that is in good and satisfactory control.”
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