Obama’s Former Economic Adviser On Biden’s Inflation Crisis: ‘My Alarm Is Increasing’

Joe Biden

On Monday, Larry Summers, a former economic adviser to President Barack Obama, responded to comments from Biden’s Treasury Secretary Janet Yellen in which she dismissed Summers’ concerns about the inflation crisis.

CNN’s Jake Tapper asked Yellen about Summers saying “We’re in more danger than we have been during my career of losing control of inflation in the U.S.”

Yellen responded, “I think he’s wrong, I don’t think we’re about to lose control of inflation.”

“I agree, of course, we are going through a period of inflation that’s higher than Americans have seen in a long time,” she added. “And it’s something that’s obviously a concern and worrying them. But we haven’t lost control.”

Summers responded to Yellen in a Twitter thread, writing, “Yesterday on @CNN w @jaketapper, @SecYellen said I was wrong about my assertion that we are more at risks of losing control of inflation than at any time in my career. She expresses confidence that inflation is decelerating and will be back to target levels by the end of next year. I hope she is right but I think it’s much less than a 50/50 chance.”

“I began my career when Paul Volker was taking over at the Fed and not since then have I been more worried. I am curious at what point in the last 40 years Treasury thinks the risk of an inflation spiral are greater than they are now,” Summers continued. “When the Administration formulated its budget in February, it expected 2 percent inflation in 2021, I was warning about inflation. Their forecast is no longer operative. In May and June, @SecYellen expressed confidence that inflation would be back to the 2 percent range by late 2021 or early 2022. Now, this forecast is no longer operative.”

“In @CNN interview, @SecYellen asserts twice that inflation has decelerated. This is a bit misleading as the 3-month and 12-month CPI inflation rates are both around 5 percent on an annual basis,” Summers continued. “And the trimmed mean and median inflation rates that exclude aberrant sectors (which used to be a stable of Administration’s rhetoric) are now accelerating. The TIPS market is suggesting inflation in 3 percent range over 5 years and more next year. Breakeven inflation over 5 years is up 40 bps in the last month. Expectations data are even more disturbing. This is part of why my alarm is increasing and Treasury should be as well.”

“Given lags in the indices, housing inflation is almost certain to soar in coming months. With super-tight labor markets, rising strike activity and real wages having declined, increases in wage inflation are likely as well,” Summers added. “I actually believe the gap between Treasury & Fed statements and the everyday experience of businesses and consumers in terms of inflation has widened in recent months. Until the Fed & Treasury fully recognize the inflation reality, they are unlikely to deal with it successfully.”