Summers Says US Recession Timing Might Have Been ‘Pushed Back’

This post was originally published on this site

https://d1-invdn-com.investing.com/content/pica17f9756119c2f7156ae08accadd04ca.png

“We are in better shape than I thought we were, and I think those are good numbers,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin days after a government report showed a bigger slowdown in consumer-price gains than forecast for November. “It does look like it’s pushed back a bit in time,” he said, referring to a forecast recession.

Even so, when the economic downturn does come, it may prove true the saying “about things taking longer to happen than you think they will — and then they happen faster than you thought they could,” Summers said.

When the recession does hit, policymakers may be confronted by a particularly sharp weakening in the labor market as well as a slide in equity markets, Summers indicated.

Employers appear to be holding on to workers in part thanks to fears that, given the labor shortages since the pandemic hit, they won’t be able to find people to fill future openings. That hoarding dynamic “could all of a sudden change very dramatically if labor markets start to loosen,” he said.

Meantime, a weakening in corporate earnings when the recession kicks in “could pop into focus for stock-market investors with adverse consequences for the market,” said Summers, a Harvard University professor and paid contributor to Bloomberg Television. He also reiterated the risk of a “Wile E. Coyote” type of a plunge in consumer spending when households deplete their savings.

After his severe criticism of the Federal Reserve since last year, Summers now assesses that the central bank is in “broadly the right place” after bringing its benchmark interest rate up by more than 4 percentage points since March and pledging to do yet more.

“I’ve been gratified to see the ways in which the Fed has caught up,” Summers said. He also applauded Fed Chair Jerome Powell for having rejected changing the 2% inflation target in his Wednesday press conference, and for adopting a flexible stance with regard to future policy decisions.

Summers played down the importance of a split between Fed officials who want incrementally more further tightening versus those who see the benchmark rate now being closer to the peak. “This is kind of the narcissism of small differences” situation when compared with where the Fed was a year or 18 months ago, he said.

Powell and his colleagues will ultimately need a lot of luck, Summers said. 

©2022 Bloomberg L.P.