A former vice president and chief economist of the World Bank and Bill Clinton administration Treasury official, Larry Summers, has warned the Joe Biden administration of serious inflation if it doesn't immediately put the brakes on its stimulus payments.
Summers said at a CoinDesk conference Thursday the Federal Reserve and other government efforts to turbo-charge the economy may have serious economic ramifications.
"I think policy is rather overdoing it. The sense of serenity and complacency being projected by the economic policymakers, that this is all something that can easily be managed, is misplaced," Summers said.
The government's recent stimulus packages have pushed prices of consumer goods to their highest. This has affected low-income families the most - all of whom were also likely hit hardest by the pandemic.
Summers also criticized the central bank's plans of keeping interest rates at extremely low levels for the foreseeable future and of buying $120 billion of bonds each month.
"The Fed's idea used to be that it removed the punchbowl before the party got good. Now, the Fed's doctrine is that it will only remove the punchbowl after it sees some people staggering around drunk," Summers said.
Summers supports Biden's efforts to increase the minimum wage and boost unions but cautioned that some of these policies can be inflationary.
"Joe Biden has a historic opportunity to be a great president. But I think they should learn the lesson of the (Lyndon) Johnson administration's errors that elected Richard Nixon and the (Jimmy) Carter administration's errors that elected Ronald Reagan," Summers said. Inflation had helped elect Republicans in the past.
Summers said the country continually "printing money" and borrowing at "unprecedented scales" created a risk of a share dollar decline. He said if it were allowed to happen, the economy could be plunged into massive inflation.
Federal Reserve officials have largely dismissed inflation concerns. Officials said rising inflation will eventually fade as businesses fully reopen. Many economists have agreed with the Federal Reserve's assessment.
