Sunday, September 24, 2023

Larry Summers, the renowned economist and former U.S. Treasury Secretary, is advocating for a half-point increase in the benchmark interest rate by the U.S. Federal Reserve in July if they decide against raising it this month. The CME Fedwatch tool indicates a 74% likelihood of no rate hike at the upcoming Federal Open Market Committee (FOMC) meeting on June 14. Summers emphasizes the need for caution and expresses concerns about the current state of the U.S. economy, citing the risks of overheating. He believes that if the Fed maintains the status quo in June, they should be prepared to compensate with a 50 basis points increase in July if the economy remains strong and inflation figures continue to be robust.

The prevailing consensus suggests that there will be no change to the federal funds rate during the upcoming FOMC meeting, with a 74.7% probability of no alteration on June 14. Only 25.3% of the market anticipates a possible rate hike. Should market expectations be met and there is no increase this month, Summers suggests that the Fed may need to address this pause by considering a half-point rate hike in July.

Summers has been critical of the Federal Reserve on multiple occasions, expressing concerns about uncontrolled inflation in 2021 and highlighting the possibility of an economic downturn starting in 2023 during his speech at the Aspen Security Forum last year. However, in his recent conversation with David Westin on Bloomberg Television, he theorized that a potential recession could be postponed until 2024 if the Fed takes sufficient measures to curb inflation, leading to a softer economy at that time.

Summers also commented on the current state of the labor market, noting its tightness and heat. The U.S. Bureau of Labor Statistics (BLS) recently reported a significant increase of 339,000 new nonfarm payroll jobs in the previous month, surpassing the forecasted 190,000 job growth for May. However, some industry experts question the reliability of the BLS data, suggesting that previous reports of strong job numbers and wage growth may have been misleading.

Larry Summers’ suggestion of a potential half-point rate hike in July has sparked discussions and debates among experts and commentators. Share your thoughts and opinions on this subject in the comments section below.

Frequently Asked Questions (FAQs) about rate hike

What is Larry Summers suggesting regarding the benchmark interest rate?

Larry Summers is suggesting that if the U.S. Federal Reserve does not increase the benchmark interest rate this month, a half-point rate hike may be necessary in July.

What are Larry Summers’ concerns about the U.S. economy?

Larry Summers has expressed concerns about the risks of overheating in the U.S. economy. He believes that the Federal Reserve needs to be cautious about these risks.

What is the likelihood of a rate hike at the upcoming FOMC meeting?

According to the CME Fedwatch tool, there is a 74% probability that the Federal Reserve will not raise the interest rate at the Federal Open Market Committee (FOMC) meeting on June 14.

How does Larry Summers suggest the Fed should compensate if there is no rate increase this month?

If there is no rate increase in June, Larry Summers suggests that the Federal Reserve may need to consider a half-point rate hike in July if the economy continues to stay strong and inflation figures remain robust.

Has Larry Summers been critical of the Federal Reserve in the past?

Yes, Larry Summers has been critical of the Federal Reserve, raising concerns about uncontrolled inflation in 2021 and discussing the possibility of an economic slump starting in 2023.


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