Larry Summers On Economic Resilience Amid Fed Tightening: ‘Interest Rates Well Above 3% Through The Rest Of This Decade’

In a recent interview on Bloomberg Television’s “Wall Street Week” with David Westin, Lawrence Summers, the former U.S. treasury secretary, shared his insights on the current economic climate.

Summers focused on the surprising robustness of the economy amidst the Federal Reserve’s intensive tightening measures, suggesting a possible increase in neutral interest rates.

“We’ve got an economy with a lot of underlying strength at interest rates where that would have looked unlikely some time ago,” Summers said on Bloomberg.

He said he believes that the current economic conditions, which remain strong despite higher interest rates, indicate that neutral rates may have risen.

This is in line with the arguments that fiscal deficits and a decreased sensitivity of spending to borrowing costs are becoming more evident.

During the discussion, Summers also referenced Treasury Secretary Janet Yellen’s recent doubt about the likelihood of interest rates returning to their low, pre-pandemic levels.

He predicted that Treasury bill rates would likely average well above 3% through the rest of this decade, a significant increase from the White House’s 2030 projection of 2.4% last year.

“One would want to be guessing that Treasury bill rates will be averaging well above 3% through the rest of this decade,” he said. 

Also Read: Jon Stewart And Larry Summers Get Into Heated Exchange Over Economy: ‘Why Aren’t We Attacking Corporate Profit In Any Way? ‘

This anticipated rate is much higher than the average since the turn of the century, where three-month bill rates were around 1.5%. These rates typically align closely with the Fed’s overnight benchmark, which was kept near zero for years following the global financial crisis.

Summers’ analysis followed a government report showing a substantial increase in job gains for January, which he described as a “very strong number.” This suggests that the economy has retained considerable strength, despite the Federal Reserve’s rate hikes over the past two years.

The former treasury secretary also mentioned that the reduced impact of housing on the GDP and the potential decrease in the durability of goods could be factors in the economy’s resilience to higher interest rates. Furthermore, the larger federal debt and increased rates could be adding more…