The Trump inflation shock could be worse than the last inflation crisis, Larry Summers warns
CNN
By Matt Egan, CNN
New York (CNN) — Larry Summers has some unsolicited advice for President-elect Donald Trump: Don’t keep your campaign promises — unless you want to send prices skyrocketing once again.
Summers, the famed economist and former Clinton-era Treasury secretary, is alarmed by the potential impact of Trump’s proposals to slash taxes, spike tariffs, deport undocumented workers and influence the Federal Reserve.
“If he carries through on what he said during his campaign, there will be an inflation shock significantly greater than the one the country suffered in 2021,” Summers told Kate Bolduan on CNN News Central on Wednesday.
That’s quite the warning considering the scale of the last inflation episode.
Consumer prices started increasing rapidly in the spring of 2021, with inflation eventually peaking at a four-decade high of 9.1% in June 2022. Many Americans had never experienced anything like it, and the shockwaves are still being felt today in the nation’s economy and political system.
Although the rate of inflation has eased substantially, the level of prices has not. And deep frustrations with the high cost of living helped return Trump to the White House.
Of course, it is far too early to know how Trump plans to enact his economic agenda and whether he will be convinced to moderate his proposals at all.
“I hope that he will get the message from this election and adjust his programs so that it’s not inflationary,” Summers told CNN. “And I hope that if it is inflationary, it will not be accommodated by the Federal Reserve.”
The Trump transition team pushed back on the inflation warning from Summers, who was a top official during the Clinton and Obama administrations.
“In his first term, President Trump instituted tariffs against China that created jobs, spurred investment, and resulted in no inflation,” Karoline Leavitt, a Trump transition spokesperson, said in a statement. “President Trump will work quickly to fix and restore an economy that puts American workers by re-shoring American jobs, lowering inflation, raising real wages, lowering taxes, cutting regulations, and unshackling American energy.”
Scott Bessent, a hedge fund executive who could become Trump’s Treasury secretary, has also dismissed the inflation concerns.
“The idea that he would recreate an affordability crisis is absurd,” Bessent told Axios. Trump “regards himself as the mayor of 330 million Americans, and he wants them to do great, and have a great four years.”
Of course, Summers is far from alone in warning the Trump agenda is inflationary.
Nobel Prize-winning economists have cautioned that the Trump agenda will “reignite” inflation. More than two-thirds (68%) of economists recently surveyed by The Wall Street Journal said prices would be higher under Trump than under Vice President Kamala Harris.
Summers, who has argued the Biden administration invited inflation by over-stimulating the economy in 2021, said today’s situation bears similarities to the period after the last election.
“The large checks that were sent out in 2021 were what people wanted. They just didn’t want the consequences that came with it in terms of increased inflation,” Summers said.
That burst of inflation was also related to supply chain troubles caused by the pandemic and Russia’s invasion of Ukraine that sent oil and gasoline prices skyrocketing.
Summers sees a similar setup today in the Trump agenda.
“The idea that this program cumulatively — bashing the Fed, raising tariffs, sending workers home, bloating budget deficits — the idea that it’s a highly inflationary program,” Summers said, “that generates about as much consensus among people who follow economic things as any proposition I can remember in the 40 years I’ve been doing this.”
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