Larry Summers Says Inflation Is The Biggest Risk For US Economy As Fed Cuts Rate By 25 Bps: Report

Former Treasury Secretary Larry Summers reportedly stated on Thursday that the biggest risk to the U.S. economy is not the job market, but inflation.

In an interview with Bloomberg, Summers said the current monetary policy and signaling of the Federal Reserve is a bit on the “loose side,” and that the balance of risks is tilted more towards inflation than unemployment. This comes after the Fed announced a 25-basis-point interest rate cut on Wednesday.

“I think we’re a bit on the loose side with respect to monetary policy and monetary policy signaling. But that’s very much a difference of degree,” Summers said in the interview.

As for Wednesday’s rate cut, Summers said that the Fed did not give in to the political pressure from President Donald Trump and other officials in the administration.

Announcing the rate cut on Wednesday, the Federal Open Market Committee (FOMC) highlighted the moderation in economic activity. It also touched upon the weakness in the labor market, stating that “job gains have slowed” while noting that inflation remains “elevated.”

“Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen,” the FOMC said.

According to the dot plot projections, one of the votes was in favor of a 125 bps cut this year. Overall, nine of the 19 participants favored one additional cut, while 10 voted in favor of two cuts.

Meanwhile, U.S. equities surged in Thursday’s opening trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.4%, while the Invesco QQQ Trust (QQQ) surged 0.88%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘extremely bullish’ territory.

The iShares 7-10 Year Treasury Bond ETF (IEF) was down by 0.39% at the time of writing.

Also See: Intel Stock Explodes On Nvidia Investment: Analyst Calls It A ‘Huge Deal’, Retail Points To Rising Competition From AMD

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