Larry Summers: The US Economy May Face a “Wile E. Coyote Moment”

Former Treasury Secretary Larry Summers said in an interview Monday that the US economy may be facing a “Wile E. Coyote moment” as it seeks to tame inflation by raising interest rates.

During an appearance on “CNN This Morning,” Summers told co-host Bobby Harlow that he expected the Federal Reserve to raise the benchmark interest rate higher than expected.

“This is a risky thing to do because, historically, we don’t tend to be able to engineer soft landings from significant inflation,” Summers said. “And so my guess is that at some point the Fed will pay and pay.”

“We’re not going to let inflation run out of control,” Summers added. “But my guess is that deinflation will lead to a recession at some point, as it has always happened in the past.”

Summers, who also served as director of the National Economic Council and chief economist at the World Bank, said the US economy could experience a “Wile E. moment in a few months.”

“Right now, companies are holding on to workers because there has been a labor shortage for the last two years, but if that starts to fade, they will feel less pressure to hold on to workers,” he said.

“It could be that interest rates will eventually work their way through the system and, you know, that will have a huge impact on employment, for example, home construction. So, you have a variety of dynamics that can kick in.”