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Here is a link to see other videos from our team. On Wednesday, Summers Warns Fed on 1970 s - Style Mistake With CPI Set to Slow I m worried that we're going to see some good news on non-core inflation, Summers said on Bloomberg Television's Wall Street Week with David Westin, ahead of consumer price data due Wednesday that will show a retreat in inflation, due to a slide in gasoline costs. Combined with some signs of economic slowing, the danger is that that is going to lead the Fed to think things are under control. The July employment and wage figures released Friday show the US economy in an overheated state, as shown by the July employment and wage figures. A red hot labor market will mean constant or even accelerating inflation, he said. In July, payrolls jumped by 528,000, a leap that beat all estimates and was the largest in five months, Labor Department data showed Friday.
Summers, a Harvard University professor and paid contributor to Bloomberg TV, said everything in this number says to me overheating, not yet under control, not yet on a path to being under control. My concern was magnified, he said. Summers noted that his intellectual sparring partner in economics, the Nobel laureate Paul Krugman, cautioned that it is not time for the Fed to change course. In both of the past two meetings, the Fed policy makers have raised rates by 75 basis points, in the most aggressive tightening since the 1980 s. Krugman wrote earlier in the New York Times that the good news we are about to get about short-term inflation isn't proof that the strategy has already worked, and as a monetary dove it offers no justification for a pivot toward easier money. Summers said the danger is that we're going to have a situation like we did in the 1970s, where we perpetuated inflation by not doing enough to contain it. Summers said that we have a good chance of core inflation running somewhere more than 5%, which is why we have food and commodities such as energy. It's more than when Richard Nixon put price controls in place. That is not acceptable in any dimension. The former Treasury chief said last month he was critical of Fed Chair Jerome Powell's assessment that the central bank had already reached a neutral setting, where it is neither stoking nor restraining consumer prices. Summers said I don't think the Fed has the thread right now. Without significantly boosting real interest rates, which are adjusted for some gauge of inflation, we're just setting the stage for stagflation, he said.