OPINION: Although inflation has eased to 3 per cent, former US Treasury secretary Larry Summers continues to warn against complacency in the fight against rising prices.
| It’s always hard to argue with former US Treasury secretary Larry Summers when it comes to inflation and the Federal Reserve’s interest rate decisions.rising inflation transitory.
“The best guess is that the Fed is going to have to raise rates more. If the Fed wants to see inflation get back to its target, it’s going to have to raise rates enough that at some point, the economy suffers,” he said. Essentially, Summers must now be thinking that the Phillips Curve – an economics concept that explains the relationship between unemployment and inflation – is not broken.
Wage growth is slowing, but it remains too high for the Fed to wrestle inflation back down to its 2 per cent target. This could mean consumers are still willing to pay higher prices for services and goods, leading to a bounce in inflation.Headline inflation has fallen from a high of 9.1 per cent last year to 3 per cent now, but there is always a chance it could get stuck there and even rise again.
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