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Don't rely on markets to see inflation threat, says Summers

Published 07/11/2021, 07:37 AM
Updated 07/11/2021, 07:40 AM
© Reuters. FILE PHOTO: Lawrence H. Summers, a Harvard University Professor and former U.S. Treasury  Secretary, attends the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, January 18, 2017. REUTERS/Ruben Sprich/File Photo

© Reuters. FILE PHOTO: Lawrence H. Summers, a Harvard University Professor and former U.S. Treasury Secretary, attends the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, January 18, 2017. REUTERS/Ruben Sprich/File Photo

By Gavin Jones

VENICE (Reuters) - Former U.S. Treasury Secretary Lawrence Summers said technical factors were probably at play in the recent surge in bond markets and warned that markets may be underestimating the risk of inflation.

U.S. Treasury yields fell sharply last week as investors came to the view that world economic growth may have peaked and a pick-up in inflation could prove transitory.

Summers told Reuters in an interview that the recent moves may be driven by "a variety of technical factors," including "a running down of Treasury accounts and an unwinding of speculative positions".

Speaking on the sidelines of a meeting of finance ministers and central bank chiefs from the Group of 20 rich countries in Venice, Summers said markets do not have a great record in predicting future price rises.

"At times when inflation has significantly accelerated in the past, such as in the 1960s, markets have lagged rather than anticipated developments," he said.

Yields on 10-year U.S. government bonds had shot up earlier this year on expectations that hefty fiscal stimulus, vaccine roll outs and a strong recovery from the COVID-19 shock would revive long-dormant price rises.

© Reuters. FILE PHOTO: Lawrence H. Summers, a Harvard University Professor and former U.S. Treasury  Secretary, attends the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, January 18, 2017. REUTERS/Ruben Sprich/File Photo

Summers, now a Harvard University professor, has been vocal in warning about inflation risks, writing on his website in May that "the primary risk to the U.S. economy is overheating — and inflation".

He wrote that the Federal Reserve and other policymakers should recognise that "overheating, and not excessive slack, is the predominant near-term risk for the economy".

Latest comments

enoghene winning web over show him USA core85paysait
Don't fight the Fed when they're printing trillions and buying debt in the open market. A new day will come eventually.
As offers take out bids, price goes down, as bids take out offers, price goes up. treasury yields are inversely proportional to treasury prices
number of people is not what makes markets go up and down; the amounts of their buying or selling does.
do treasury yields go down when more people buy them or when more people sell them?
 Ex..the FED has been the biggest buyer, why? to artificially push Bond prices up and yields down. This is the reason Bond yields are so low right now. Bonds are actually a losing investment right now as the yield produced is outstripped by the rise in inflation.
It seems like your eager to learn so I am just tossing some info out there for you to see. When you understand the big (3) Bonds, Equities, and the dollar , it will all start to make more sense when you see how one is affected by the other. The puzzle starts to take shape
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As the poor get poorer governments will raise taxes on rich to reduce liquidity, that and protectionism will subdue growth into stagnation
I agree stagnation is going to be the monster that takes down the House of cards that has been built? time will tell
stagflation
The US government has almost 30 trillion in debt. They cannot allow the Federal reserve to raise rates, and they will pressure the federal reserve to continue to buy treasury bonds to keep rates low. We are on a speeding train with no brakes. The only way they have to get out of this is to inflate the debt away. So, the Fed will abandon its goal of stable prices and let inflation run to extremes. They simply have no other choice at this point.
 Stocks to the moon? not necessarily. Inflation is a giant tax on the masses actually hurting the low and middle class the worst. So the more inflation goes up the less people will tend to buy? or they will change their purchase priorities thus hurting corporate earnings and tanking the markets. The biggest issue I have with the FED and Govt is this... what they are and have been doing is widening the wealth gap all while stating the wealth gap is a massive issue?? So in essence they are talking out of both sides of their face saying one thing all while throwing fuel on the fire to add to what they are claiming to be against. I believe  ( my own theory) is that the wealthy and big money control everything behind the scenes and this is not by mistake but more by design. Think about it???
 Theory is possible but have you considered this? You said, "what they are and have been doing is widening the wealth gap all while stating the wealth gap is a massive issue"? The wealth gap is a massive issue strictly because they can't stop it from widening?
 correct! at this point they have backed themselves in a corner and lost control,  they will take care of the wealthy elite before the masses of minions by continuing to go down this dangerous path. It's really unsettling to see the FOMC do what they are doing right now. They have totally separated from what they are there to do and went rogue. The FED Reserve seems to think that their role now is to prop markets at any cost? Have they been politicized? I think to some extent yes.
People with liquidity will push prices beyond the reach of the poor. Suppliers will not be able or decide not to match demand in time. New entrants will take too long
Fed will fall to get full employment target and as inflation creeps up, Fed will be forced to give up full employment goal and raise rates. The Haves have so much more money to cause inflation than the unemployed Have nots do to survive higher prices.
For now but the party for them is ending
Inflation is already here .. and its not transitory nor temporary. Lots of money-printing, lost of digitaly generated moeny, lots of given credits out of thin air, and the pumped property market. ... this is going to end badly .. very soon.
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Agree 100%
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