Former U.S. Treasury Secretary Larry Summers says there needs to be a surge in unemployment to curb inflation, which Federal Reserve policymakers say doesn’t need to happen for price growth to cool off.
According to Bloomberg News, Summers said in a speech on Monday from London there needs to be a lasting period of an unemployment rise to contain inflation — either, a one year spike to 10%, two years of 7.5% unemployment, or five years of 6% unemployment.
Put a different way, Summers is calling for the unemployed rolls to swell to roughly 16 million from just under 6 million in May.
The president spoke with Summers on Monday, though he said a U.S. recession can be avoided.
In May, the unemployment rate was 3.6%. What Summers is basically saying is he wants the unemployment rate to rise to a level that would knock a full percentage point off inflation. The core PCE price index was 4.9% year-over-year in April.
Current Federal Reserve officials don’t accept that there needs to be such a stark trade-off. The Fed’s forecasts call for the unemployment rate to rise to 4.1% next year in a way that would cool core inflation to 2.3%. Christopher Waller, a Fed governor, said the trade-off was less between inflation and unemployment, than between inflation and job openings.