Former Treasury Secretary Summers makes another “doomsday prophecy”: U.S. recession is inevitable

The combination of economic overheating, policy delays, and supply shocks makes a U.S. recession more likely in the coming years. Economists' latest forecasts also show the chance of a recession in the next 12 months has risen to 27.5% from 20% last month

According to former US Treasury Secretary Lawrence Summers, the United States will fall into a recession next year, and more and more economists are reaching a consensus on this.

On Friday, Summers pointed out on a TV show that the combination of “overheating, policy delays, and supply shocks” poses an extremely difficult set of challenges, so that a U.S. recession is “clearly more difficult than no recession in the next few years.” It is possible,” adding that economists are gradually reaching such a consensus.

Data from a survey of economists does show that the probability of a recession they forecast in the next 12 months has risen from 20% last month to 27.5% today.

Summers emphasized that historically, the United States has not been without a recession within two years after inflation above 4% and unemployment below 4%. At present, the market's expectation for the US CPI in March has exceeded 8%, and the corresponding unemployment rate is 3.6%.

Summers believes that if the Fed is to reduce inflation, it needs to properly weaken the labor market. He cited nominal wages (not adjusted for cost of living), which he said were surging at the fastest rate on record, with an annual rate of 5.6 per cent in March. And a recent co-authored paper by Summers shows that once nominal wage growth exceeds a certain rate “say 4% or 4.5%” it leads to worse, not better, outcomes in terms of household purchasing power.

And right now, in the words of Summers, the U.S.’s current 40-year high inflation means that average real wages last year were “one of the worst performances we’ve ever seen.”

It is worth mentioning that Summers predicted as early as the middle of last year that U.S. inflation would reach 5% by the end of the year, much higher than the Fed’s statement of 3.4% at the time, and the final data also confirmed Summers’ prediction.