Larry Summers says the US WILL have a recession and gas prices will keep going up

Top Obama economic advisor and Clinton-era Treasury Sec. Larry Summers said that he thought Treasury Sec. Janet Yellen is wrong to say that there is ‘nothing to suggest’ the U.S. will fall into a recession.

‘There’s nothing to suggest that there’s a recession in the works,’ Yellen said at a New York Times economic forum last week. 

Asked if he thought Yellen was right on CNN’s State of the Union Sunday, Summers replied: ‘No.’ 

‘I think when inflation is as high as it is right now and unemployment is as low as it is right now it’s almost always been followed within two years by recession,’ he added. 

‘I look at what’s happening in the stock and bond markets, I look at where consumer sentiment is, I think there’s certainly a risk of recession in the next year and I think that given where we’ve got to it’s more likely than not that we’ll have a recession within the next two years,’ the Democratic economic advisor said. 

In a veiled jab at Yellen and other Biden economists, he said: ‘I think the optimists were wrong a year ago in saying we have no inflation and I think they’re wrong now.’

‘The Fed’s forecasts have tended to be much too optimistic. I hope they’ll recognize fully the gravity of the problem in their forecasts when they meet this week.’ 

Federal Reserve chair Jerome Powell and Yellen spent much of 2021 insisting inflation would be ‘transitory’ and the Fed has since been criticized for waiting too long to tighten monetary policy and raise near-zero interest rates. 

As of Monday the national average cost for a gallon of gas is $5.01, surpassing the $5 mark for the first time in history, and inflation hit a 41-year high of 8.6 percent in May, according to the most recently available Labor Department data released last week.

Larry Summers said that he thought Treasury Sec. Janet Yellen is wrong to say that there is ‘nothing to suggest’ the U.S. will fall into a recession

In a veiled jab at Treasury Sec. Janet Yellen and other Biden economists, Summers said: ‘I think the optimists were wrong a year ago in saying we have no inflation and I think they’re wrong now’

Meanwhile the cost of groceries rose 11.9 per cent from this time last year, the sharpest increase the country has seen since Jimmy Carter was president. 

But Summers offered a hint of optimism: ‘That is something we can manage. We have had them for the whole history of the country. We need to be prepared and to respond quickly if and when it happens.’

He also claimed that there is ‘not a lot’ President Biden can do about gas prices, blaming them on geopolitical developments in Ukraine, and said it is ‘hypocrisy in the extreme’ when people claim the U.S. needs to stand by Ukraine but then blame Biden for high gas prices. 

The new figures suggested that the Federal Reserve could continue with its rapid interest rate hikes through September to combat inflation, after already raising rates by 75 basis points since March. 

The Federal Reserve meets for two days next week and most economists and analysts expect the central bank to raise its main borrowing rate by another half point. 

It already raised that rate by a half-point on May 4, its most aggressive move since 2000 and double the usual amount of increase.

Another hike is set for September, possibly by double July’s increase, and the central bank will also halt its bond-buying program next month.

It’s part of a growing global tide where central banks are removing the ultra-low interest rates that supported borrowing, economic growth and stock prices through the pandemic and also flooded the markets with investments seeking higher returns.

Now, central banks are focused on slowing growth in a bid to bring inflation under control. 

The risk is that such moves could cause a recession if they´re too aggressive, and higher interest rates tend to pull share prices lower.