Summers: We’ll Either Have ‘Substantially Unsustainable Inflation’ or ‘Fairly Hard’ Downturn Due to Bank Issues

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 “we are still a substantially unsustainable inflation country unless the economy turns down fairly hard” due to issues in the banking system.

Summers said that while the most recent PCE numbers are better than previous numbers, “I don’t think one should make too much of that. I think we are still a substantially unsustainable inflation country unless the economy turns down fairly hard in response to the credit issues raised by the banking system, and we don’t know yet whether that’s going to happen.”

He added, “So, in a sense, the outcomes here are a bit bifurcated. Either the banking crisis will pass without incident and without large impact on credit, in which case we really do have serious inflation issues and the Fed will have to tighten much more than is priced in, or we’re going to see some kind of real downturn here. And I think both are plausible outcomes and I recognize that there’s a chance we’ll skate through right in between, but I have to say that seems very much odds off to me. Soft landings are very hard, even in the best environment.”

Follow Ian Hanchett on Twitter @IanHanchett