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Former Treasury Secretary Larry Summers said the likelihood of a recession has increased.
On CNN’s Fareed Zakaria GPS, Zakaria spoke to Summers about the upcoming release of America’s second-quarter GDP data next week. With first-quarter GDP showing an economic slowdown, he asked Summers if he thought there was a chance of a recession.
“I think the likelihood of a recession is very high. When we’ve been in a situation like this before, it’s essentially always been followed by a recession. When inflation has been high and unemployment low, soft landings are a kind of triumph of hope over experience. I think it’s very unlikely that we’ll see one,” Summers said.
A recession occurs when the US economy shrinks for two consecutive quarters. Fears that the country is entering a recession are renewed after reports that inflation hit a new decade high of 9.1%.
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President Biden has said he’s not worried about a recession. (Getty Images)
Summers, who served as director of the National Economic Council during the Obama administration, was similarly pessimistic about the ability to contain inflation
“Whether or not we’re going to fully bottle inflation with this recession is very difficult to judge at this point in my opinion. I was encouraged by the Feds’ commitment to do so, but other central banks have at other times said they were committed but had not done enough after the economy slowed to actually ensure inflation fell significantly. So I think the risk of stagflation and this episode that will follow us for a few years is greater than the market is currently discounting,” Summers said.
Since November, Summers has consistently warned the Biden government about the risk of inflation in the country. Back in December, Summers hinted that the Biden administration was past the point of avoiding a recession.
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73 percent of voters disapprove of the Democrats’ handling of inflation. (actual stock)
“I think pain is coming. That’s what happens when you borrow too much to spend too much, but I think the most important thing to remember is that we’ve had a lot of pain because of inflation. Prices have risen 3%, or 4% per year, faster than wages over the past 12 months. Something like this will continue unless we do what is necessary to bring down inflation,” Summers said.
He also suggested some solutions, such as scrapping tariffs and reducing the budget deficit, and criticized claims that the rate of inflation could not be predicted.
Inflation hit a 40-year high in June. (actual stock)
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“Printing money and distributing it long before goods are available is a recipe for inflation and we have done that. We injected enough money into the economy to keep total spending growing at a rate of 11.6% last year. If you have 11.6 growth rate in spending, then by any reasonable theory of how much capacity there is, you’re going to have a lot of inflation, and we did that,” Summers said.
Lindsay Kornick is Associate Editor at Fox News Digital. Story tips can be sent to [email protected] and on Twitter: @lmkornick.