Summers: Soft Landing Still ‘Triumph of Hope over Experience’ and We Don’t Have Needed Labor Market Slack

During an interview aired on Friday’s edition of Bloomberg’s “Wall Street Week,” Harvard Professor, economist, Director of the National Economic Council under President Barack Obama, and Treasury Secretary under President Bill Clinton Larry Summers stated that while the December jobs numbers are good, we still don’t have the needed loosening in the labor market, and that while the prospects of a near-term recession seem lower, “the judgment that soft landings are the triumph of hope over experience continues to be the right best guess with respect to the economy.”

Summers said, “These were good numbers. They showed a strong economy with slowing inflationary pressure. Insofar as there’s [a] strong signal in them, it’s got to be encouraging. My instinct is not to make too much of the month-to-month fluctuations in the wage numbers, which are, I think, a source of encouragement that people are seeing. … But this is an encouraging number.”

He added, “My view continues to be that you don’t get inflation down to the 2% range without getting wage inflation substantially down and you don’t get wage inflation substantially down without meaningful slack in the labor market. And we don’t have slack in the labor market. And there’s nothing in this number that fundamentally changes that picture. I certainly think that the prospects for a recession in the near term look lower. Prospects of a recession in the winter or spring of 2023 are certainly lower right now than I would have guessed they would be six months ago. But I think the judgment that soft landings are the triumph of hope over experience continues to be the right best guess with respect to the economy. And I’m not sure that continued strength points to a softer landing rather than pointing to even a harder landing when things reequilibrate.”

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