Obama-Era Economic Director Reveals What Will Bring Down Inflation

Then-President Barack Obama speaks about the financial crisis responsibility fee in the Diplomatic Reception Room at the White House as Larry Summers looks on in Washington on Jan. 14, 2010. (Ron Sachs-Pool/Getty Images)

A former Treasury secretary on Friday predicted that the risk of a 2022 recession is increasing and revealed the one thing that might dampen inflation.

“The risks of a 2022 recession are significantly higher than I would have judged six or nine weeks ago,” Larry Summers, who was also former President Barack Obama’s director of the National Economic Council, told Bloomberg in an interview published Friday. A months-long recession would tamp down inflationary pressures, he also predicted.

“If the economy did go into recession in the next six to nine months, then you’d probably see a reduction in inflationary pressures,” Summers remarked.

The Department of Labor recently said that year-over-year inflation rose 8.6 percent in May, the highest figure seen since the early 1980s. The price pressures prompted the Federal Reserve to increase interest rates to levels not seen in 20 years.

From the start of 2022, a growing number of economists and corporate executives have signaled they believe a recession could occur sometime this year or in the next several years. And a growing number of analysts say that the United States is already in one.

The stock market has had its worst year in 2022 since 1970 as concerns are mounting about whether inflation could curb economic growth. In the past six months, the benchmark S&P 500 index dropped 20.6 percentage points while other major American indexes have similarly plunged.

“We think we are in a recession,” Cathie Wood, CEO of asset management firm Ark Invest, told CNBC on Tuesday, adding there is a “big problem out there [with] inventories” and that it’s an “increase of which I’ve never seen this large in my career. I’ve been around for 45 years.”

Economist and gold salesman Peter Schiff wrote this week that the United States will face an economic crisis worse than the so-called Great Recession of 2008, saying that President Joe Biden “will soon be forced to admit that America’s red hot economy has actually been in a recession all year.”

Later in Friday’s interview, Summers claimed he thinks central banks like the Fed will be able to reduce inflation. Fed Chairman Jerome Powell recently said he wants to see rates drop to 2 percent.

The notion that “it’s not going to be possible for central banks to achieve low inflation and meet their inflation targets—that would not be an idea that I would subscribe to,“ Summers told Bloomberg. ”It may be more difficult, it may require them to be resolute, but I don’t think they’re going to be unable to meet their inflation targets.”