Clinton Treasury Secretary Warns Democrats That Dismissing Inflation ‘Risks Bringing Donald Trump Back’ in 2024

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Former Treasury Secretary Lawrence Summers published a warning for Democrats on Monday, urging them not to dismiss inflation as “transitory.”

Noting that Federal Reserve Chairman Jerome Powell had enumerated a view in August that inflation was temporary, Summers wrote in an op-ed for The Washington Post that Powell’s arguments were “wobbly at best.” citing, among other factors, that prices for goods outside food and energy were up 12 percent for the year, and the fact that job vacancy rates were at record highs.

“Powell and his colleagues have rightly emphasized the need for close economic monitoring and attentiveness to inflation risks,” Summers wrote. “Now the Fed should signal that the primary risk is overheating and accelerate tapering of its asset purchases. Given the house-price boom, mortgage-related purchases should stop immediately. Because of inflation, real interest rates are lower, as money is easier than a year ago. The Fed should signal that this is unacceptable and will be reversed.”

Unlike conservative critics and some economists, he took a less pessimistic view of President Joe Biden’s proposal for $1.75 trillion in new spending, the Build Back Better Act, arguing that it would “spend less over 10 years than was spent on stimulus in 2021.” However, he said, the Biden administration “should signal that a concern about inflation will inform its policies generally. Measures already taken to reduce port bottlenecks may have limited effect but are a clear positive step. Buying inexpensively should take priority over buying American. Tariff reduction is the most important supply-side policy the administration could undertake to combat inflation. Raising fossil fuel supplies, by relaxing regulations and deploying the Strategic Petroleum Reserve, are crucial. And financial regulators need to step up and be attentive to the pockets of speculative excess that are increasingly evident in financial markets.”

“Excessive inflation and a sense that it was not being controlled helped elect Richard Nixon and Ronald Reagan, and risks bringing Donald Trump back to power,” he added. “While an overheating economy is a relatively good problem to have compared to a pandemic or a financial crisis, it will metastasize and threaten prosperity and public trust unless clearly acknowledged and addressed.”

Summers, who served as President Bill Clinton’s Treasury secretary from 1999-01, has been vocal in his view that the Biden administration is doing an inadequate job of addressing inflation. He said in an interview this month he believed Biden’s Federal Reserve was “still not fully recognizing the gravity of the situation.”