Former US Treasury Secretary Summers criticizes interest rate cuts: Fed policy is "too loose," inflation issue is prominent

Former U.S. Treasury Secretary Lawrence Summers stated that the policy of the Federal Reserve is becoming too accommodative, emphasizing that the biggest risk facing the U.S. economy is inflation, not the job market. Summers said, "In my personal judgment, from the overall financial situation, the current policy implementation is slightly too loose, which is different from what people think. The current balance of risks leans more towards inflation rather than unemployment." Summers made these comments after the Federal Reserve's first interest rate cut in a year. Federal Reserve Chairman Powell stated that this decision reflects a shift in the balance of risks, as recent data clearly show signs of a significant slowdown in job growth and weakness in other aspects of the labor market. Summers said, "In this situation, the biggest risk is that we may deviate from the 2% inflation target and become a country with inflation expectations. I think we have been a bit too casual in terms of monetary policy and signaling. But this is only a matter of degree." The Fed officials and regional Fed presidents raised their expectations for inflation next year in the latest forecast report released on Wednesday. The average forecast shows that the Fed's favored measure - the PCE price index - will rise by 3% in 2025 and by 2.6% next year - higher than the 2.4% forecast in June. Summers said, "If I were in Powell's position, undoubtedly I would be most concerned about inflation issues." Summers added that the pressure from Trump and his allies on the Fed to significantly reduce interest rates highlights the necessity of maintaining determination to combat inflation. Summers commented on Wednesday's rate cut, saying, "I don't think they did it under political pressure. But I think in this situation, you have to do everything to address it. I'm not sure how much of a concession they have made, which falls a bit short of what I expected."