Lawrence H. Summers, who served as Bill Clinton’s Treasury Secretary and was one of Barack Obama’s chief economic advisors, says “housing inflation is almost certain to soar in coming months,” and he’s taking the current Treasury chief to task over her rosy view of inflation.
Former Treasury Secretary Summers has been sounding the alarm over inflation for months, even as current Treasury Secretary Janet Yellen has claimed the problem is “transitory” and not a significant threat to the economy.
In response, Summers has criticized the Biden administration’s economic response to the pandemic, warning that rising inflation isn’t a temporary concern but a long-term problem the Fed will have trouble reining in.
“We are printing money, we are creating government bonds, we are borrowing on unprecedented scales,” Summers said earlier this year.
“Those are things that surely create more of a risk of a sharp dollar decline than we had before. And sharp dollar declines are much more likely to translate themselves into inflation than they were historically.”
On CNN, Yellen agreed the U.S. is experiencing high inflation, but she stood by Fed projections that prices will normalize. As for Summers’ claim that she’s mishandling the inflation issue, Yellen said, “I think he’s wrong.”
“I don’t think we’re about to lose control of inflation. It’s something that’s obviously a concern and worrying [Americans], but we haven’t lost control.” She told CNN’s Jake Tapper inflation will return to 2% by the middle of next year.
Wrong, Summers responded via Twitter.
“In May and June, @SecYellen expressed confidence that inflation would be back to the 2 percent range by late 2021 or early 2022. Now, this forecast is no longer operative,” he wrote. Summers also added a fact check:
And perhaps most ominous is Summers’ prediction for housing costs. “Given lags in the indices, housing inflation is almost certain to soar in the coming months. With super-tight labor markets, rising strike activity and real wages having declined, increases in wage inflation are likely as well,” Summers wrote.
He’s not alone in this thinking. Mortgage Bankers Association Senior Vice President and Chief Economist Mike Fratantoni also said he expects housing inflation to continue. “We’re really pretty confident that [housing costs] are going to keep rising even after some of the things like used car prices and other things that are directly related to supply-chain constraints revert,” he said.
“Those things are going to be transitory once those supply chain issues go away. But I think the shelter price component is going to persist for a long time – like years.”
Yellen and Fed Chairman Jerome Powell admitted last month that their predictions about inflation have not proven true. During testimony before the Senate Banking Committee, Yellen acknowledged inflation is rising twice as fast as the 2% she had predicted. “Probably closer to 4% and that already almost must be the case based on what’s happened this year,” she told Sen. John Kennedy (R-La.)
“I actually believe the gap between Treasury & Fed statements and the everyday experience of businesses and consumers in terms of inflation has widened in recent months,” was Summers’s response. “Until the Fed & Treasury fully recognize the inflation reality, they are unlikely to deal with it successfully.”