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Home News Summers says inflation indicators flashing 'red alarm'

Summers says inflation indicators flashing ‘red alarm’

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Summary (IA Generated)

Former Treasury Secretary and prominent Democratic policy advisor Larry Summers said Wednesday that inflation indicators were flashing “red alarms,” renewing a critique of President BidenJoe BidenBiden overruled Blinken, top officials on initial refugee cap decision: report Suicide bombing hits Afghan security forces Jim Jordan, Val Demings get in shouting match about police during hearing MORE’s $1.

“We were providing demand well in excess over the next couple of years of any plausible estimate of the economy’s potential to produce, and that meant substantial price increases,” he said at a Council on Foreign Relations forum.

“All the signs are for inflation starting to break out,” he said, pointing to recent upticks in the costs of housing, used cars, and commodities, as well as labor shortages, businesses reporting price increases, and surveys of purchasing managers.

Summers qualified his remarks by noting that economists disagree about some fundamental issues, and said there was a one in three chance that inflation doesn’t take hold in a significant way that leads to bad outcomes.

Summers first raised concerns that Biden’s COVID-19 relief bill was much larger than the so-called output gap in the economy, a measure of how far off the economy is from its potential, in a February Washington Post op-ed.

Too much stimulus, he argued, would lead to substantial price increases, which would in and of themselves make life harder for the poorest, and force the Federal Reserve to raise interest rates, potentially knee-capping the recovery or even creating a recession.

The Fed, which has a mandate to keep prices relatively stable, said it could tolerate a higher level of inflation over the short term, especially given that price increases have largely fallen below the target range of 2 percent in recent years.

They said in the short run, the inflation would be the result of fleeting factors such as pent up demand from the pandemic, supply chains, and distortions in data when compared to last year, when the pandemic walloped the economy.

Summers dismissed the analysis, saying that if its arguments were the best case against worrying about inflation, he was even more worried.

‘I guess it seemed to me that it failed to address the calculations about GDP gap, it failed to address concerns from a wide variety of indicators, it focused on labor market issues without focusing at all on any of the suggestions in the data that there might be emerging labor market shortages, and it didn’t recognize the nature of lags issues with respect to monetary policy,” he said.

3 trillion infrastructure bill, saying that money spent on infrastructure investments would not only boost the economy, but could end up covering some of their own costs.

In fact, he said he would have supported $5 trillion directed toward investment, climate change, and infrastructure.


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