In remarks made at the World Economic Forum in Davos Switzerland, former U.S. Treasury Secretary Larry Summers said that the “greatest tragedy” for the worldwide economy would be if central banks don’t follow through on their policies to tamp down inflation, according to an article in CNBC. Central banks have taken an aggressive stance against inflation in the last several months, raising interest rates and tightening monetary policies. Now, many economists are beginning to be more optimistic as evidence shows that inflation is easing, and that could lead policymakers to began pulling back on rate hikes.
But while there’s an “exhilaration of relief,” Summers warned against pulling back too soon and getting too complacent. Despite a steady decline, inflation still remains high, and transitory factors may have more to do with that downward trend. Though there are concerns about the impact of long-term high interest rates, policymakers need to maintain their hawkish stance, Summers insisted, in order to avoid having “to fight this battle twice.” Easing off too soon and allowing inflation to come roaring back would do great damage to price stability as well as the standards of living for lower-income people, and “pose very substantial risks to cyclical stability,” Summers said, the article reports.
In addition, Summers called attention to the ordinary people “who have been left behind” and are suffering the brunt of “all of these necessary adjustments” the most. “That too is going to be crucial in the years ahead,” he told the audience at the CNBC-moderated panel where he made the remarks.