Mike Theiler/AFP via Getty ImagesFormer Treasury Secretary Larry Summers, whose out-of-consensus views about the risks of persistent inflation have come true, is reiterating his concerns about a potential U.S. downturn: He now says a recession is “the most likely thing” partly because the Federal Reserve “is going to have to keep going [in its effort to subdue inflation] until we see disinflation.”In an interview with Bloomberg Economics released on Thursday, Summers, a paid contributor to Bloomberg, said that “the odds on a hard landing within the next two years are certainly better than half, and quite possibly two-thirds or more.” One of the mechanisms that will bring about a recession is the central bank’s response to elevated inflation, Summers said, adding that “we’re not going to see disinflation back toward the target range until we see unemployment rise, meaningfully.”See:Treasury Secretary Janet Yellen says not impossible for the Fed to engineer a soft landing for the U.S. economyThe publication of Summers’s comments come just two days after the consumer price index data showed the annual headline U.S. inflation rate jumping to 8.5% in March, the highest level since 1981. The rate has remained well above the Fed’s 2% target for almost a year, putting central bankers under pressure to aggressively raise target lending rates. Expectations for higher rates are rippling out throughout the economy, with the average 30-year mortgage rate soaring to 5% for the first time in a decade. Meanwhile, financial-market participants continue to debate whether inflation has hit a peak.“If you look at history, there has never been a moment when inflation was above 4% and unemployment was below 5% when we did not have a recession within the next two years,” Summers said, according to a Bloomberg transcript. “I don’t think the idea that is still embodied in Fed forecasts — that we could have continuing supertight labor markets at 3½% unemployment, and we could have inflation come down rapidly — is a terribly plausible one.”Generally, economists appear to be coming around to the potential for a downturn: A Wall Street Journal survey of economists in April puts the odds of a recession in the next 12 months at 28%, up from 13% a year ago. On Thursday, investors aggressively sold off Treasurys as they assessed the path forward on inflation, with yields rising across the board. The 10-year rate BX:TMUBMUSD10Y jumped above 2.8%, while the major U.S. stock indexes DJIACOMPSPX were mixed.
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