Larry Summers: US Economy May Face a ‘Wile E. Coyote Moment’

Former Treasury Secretary Larry Summers said in an interview Monday that the U.S. economy may be facing a “Wile E. Coyote moment” as it seeks to tame inflation with interest rate hikes.

During an appearance on “CNN This Morning,” Summers told co-anchor Poppy Harlow that he expects the Federal Reserve to raise its benchmark interest rate higher than expected.

“It’s a risky thing because historically we don’t tend to be able to make soft landings from significant inflation,” Summers said. “And so my guess is that at some point the Fed will push and shove.”

“We don’t want inflation to accelerate and spiral out of control,” Summers added. “But my guess is that the process of bringing down inflation will bring about a recession at some point, as it almost always has in the past.”

Summers, who has also served as director of the National Economic Council and chief economist at the World Bank, said the U.S. economy may experience a “Wile E. Coyote moment” running through thin air as markets “hit a bubble.” in a few months.”

“Right now, companies are holding on to workers because there’s been a labor shortage for the last few years, but if that starts to go away, then they’ll feel less pressure to hold on to workers,” he said.

“It may be that the interest rates will eventually work their way through the system, and you know it will have a significant effect on employment, for example by building houses. So you have a number of different dynamics that could come into play.”

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