Summers warned that if Trump insists on fulfilling the promises made during his campaign, the usa will suffer a more severe inflation shock than in 2021. It is hoped that Trump can learn from this term and adjust his plans to avoid causing inflation.
Renowned economist and former usa Treasury Secretary Larry Summers advised President-elect Trump from a distance: do not keep campaign promises—unless you want prices to soar again.
On Wednesday local time, Summers stated in a media interview that if Trump insists on fulfilling the promises made during the campaign, the usa will suffer a more severe inflation shock than in 2021. This could imply double-digit inflation.
In 2021, Summers accurately predicted the last round of massive inflation in usa. At that time, he warned that the Biden administration's pandemic stimulus plan was inflationary, and the 1.9 trillion dollar usa rescue plan would create excess demand and lead to an overheating economy.
The Biden administration ignored Summers' warnings, believing inflation was merely 'temporary'. What happened later is known to all, usa inflation soared, reaching a 40-year high of 9.1% in June 2022.
Summers pointed out that several policies and actions proposed by Trump would lead to a resurgence of inflation, including tax cuts that could reach 10 trillion dollars in a decade, intervention in Federal Reserve interest rate decisions, the imposition of comprehensive tariffs on imported commodities, and a large-scale illegal immigration deportation plan.
Summers expressed hope that Trump can learn from this term and adjust his plans to avoid causing inflation. If inflation ultimately returns, the Federal Reserve will not tolerate it.
The latest data released on Wednesday showed that after the Federal Reserve cut interest rates for the second consecutive time last week, the usa CPI rebounded to 2.6% in October, meeting expectations but reaching a three-month high. Summers also questioned the Federal Reserve at an event on Tuesday, stating: 'My personal determination is that the Federal Reserve and the market still underestimate the risks of overheating.'
In response to Summers' suggestions, the Trump team has made a statement.
Karoline Leavitt, spokesperson for Trump's transition team, stated in a press release that President Trump imposed tariffs during his first term, created jobs, stimulated investment, and did not lead to inflation. "President Trump will act swiftly to revitalize us jobs, reduce inflation, increase real wages, lower taxes, cut regulation, and unleash us energy to repair and restore the economy for the benefit of American workers."
Scott Bessent, a potential pick for Treasury Secretary and hedge fund executive, also dismissed inflation concerns. He stated:
"The idea that Trump will recreate an affordability crisis is absurd... He sees himself as the mayor of 0.33 billion us citizens, and he wants them to do well and have a great four years."
