Larry Summers urges Fed to boost rates more than markets expect

Larry Summers urges Fed to boost rates more than markets expect

Former US Treasury Secretary Lawrence Summers warned that the Fed may have to raise interest rates in the future. Rates, as the economist notes, will be increased more than the markets currently expect.

Bringing inflation down to the Fed's target is not an easy task, according to Summers. He also believes that Fed policymakers will need more increases in interest rates than the market estimates.

Interest rate futures suggest the Fed will boost rates to around 5% by May next year. At the moment, the target range is 3.75-4%. Economists are expecting a 50 basis point rate increase at the December 14 meeting. On the same day, Fed officials will publish new projections for the key rate.

Raising the rate to 6%, according to Summers, is possible. He also says 5% is not the best estimate.

Summers believes the best indicator of core underlying inflation is wage growth. The former US Treasury Secretary says inflation will be more sustained than people are looking for.

The economist also warned that during this recession, interest rates will be higher compared to those seen in the past.