Yellen had reiterated her view that “there is a path to bring down inflation while maintaining a strong labor market.” She said that “most estimates of the natural rate of unemployment” -- which doesn’t spur or curb inflation -- “are lower than 5%.” She said it’s not a “certainty” that a strong job market could be maintained.
“I have to say that statement greatly surprised me,” Summers said while noting his respect for Yellen as an economist.
He also repeated his disagreement with Fed policy makers’ June prediction that unemployment would only rise to 4.1% in the coming two years.
“I don’t see any basis for thinking that either of those statements is a reasonable prediction given what we know,” Summers said. He cited his own research with former IMF chief economist Olivier Blanchard, that shows “just to get to a neutral posture with respect to inflation we’re going to take unemployment up towards 5.” And to help bring down inflation, joblessness would need to climb past that level, he said.
This article was provided by Bloomberg News.