Inflation Deepens Recession

Larry Summers, former Treasury Secretary and retired president of Harvard, is just an economist now. He has made himself the country’s top critic of the Fed. Recently, he told Bloomberg that the American central bank may take a slight slowing in the pace of the increase of high inflation as a reason to cut back its rate hikes. Summers added that inflation continues to be a deep problem and that the Fed’s possible tapering of interest rates increases will actually allow this inflation to quickly explode even more.

Summers believes that a slowing in inflation’s pace will almost entirely be because gas price surges have stopped and that the price of gas has begun to fall. Just two months ago, the price of a gallon of regular gas nationwide topped $5. This is mostly because oil prices spiked well above $100 a barrel.

Oil, however, was a sliver of the rising cost of living in America. Other foundations of the problem run from food to insurance, to mortgages to cars. Gas price drops are not enough to offset these. And some item prices may continue to rise. For example, a shortage of fertilizer will drive food costs up even more.

Summers’ argument has been supported by the tremendous increase in jobs, ironically. While this usually signals an improved economy, it also makes a drop in inflation nearly impossible. The jobless rate, at 3.5% in July, has returned to the extreme lows before the pandemic.

Should inflation stay high for any reason, the American household’s purchasing power will be undermined. The fact that a large number of people have jobs only means more people face the squeeze between wages and daily expenses.

The recession is still coming, or is here, and a Fed decision to take its foot off the interest rate increase accelerator will make it even worse.

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