The United States economy is still experiencing high levels of inflation, according to former US Treasury Secretary Lawrence Summers. Speaking at the Caixin Asia New Vision Forum in Singapore, he said the country was experiencing baseline inflation of between 4.5% and 5%. Summers is a long-time hawk on inflation, and has argued low unemployment and high wage growth will push up prices for some time. The Federal Reserve has followed Summers’ lead, hiking interest rates at every meeting since March 2022, and is due to meet again later this week.
Summers believes the US could struggle to achieve a ‘soft landing’ and he sees “emergencies” in commercial real estate. Many tenants have adopted remote working practices during the COVID-19 pandemic, which is reducing their footprint and leading to a slowdown in the building sector. Real estate owners face difficulty paying loan payments which could exacerbate the problems.
Summers’ stance on inflation is largely unique amongst economists, and he suggests the US could need an economic slowdown and price controls to address the issue. His thoughts are partially backed by the high wage growth the US has experienced, which is frequently cited as one of the driving forces behind escalating prices.
Summary:
Former US Treasury Secretary Lawrence Summers has said the United States is not yet done in its fight against inflation. Speaking at the Caixin Asia New Vision Forum in Singapore, he stated that the country still has baseline inflation of 4.5% to 5%. He went on to say that it could take an economic slowdown and price controls to address the issue. Many economists expect the Federal Reserve to hold interest rates this month, following hikes at every meeting since March 2022. Summers also argued that commercial real estate represents an emerging emergency for US policymakers. Many tenants have adopted remote working, leading to a slowdown in construction. This could have major repercussions for the US economy, as small and medium-sized banks supply 80% of commercial real estate loans.
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Former US Treasury Secretary Lawrence Summers doesn’t think the US fight against inflation isn’t over yet.
The US economy is still “very, very hot,” he said Monday at the Caixin Asia New Vision Forum in Singapore, which he attended via video link Bloomberg.
“The United States today is a country with baseline inflation at 4.5% to 5%,” he said.
Summers is a longtime hawk on inflation, arguing that the massive US stimulus measures during the COVID pandemic would eventually result in higher prices across the economy. He also argued that low unemployment and high wage growth were pushing up prices, suggesting that an economic slowdown and price control may be needed 6% unemployment rate.
The Federal Reserve followed Summers’ dovish stance and the Federal Reserve has hiked interest rates at each of its monthly meetings since March 2022.
The Fed will meet later this week to decide whether to change interest rates again. Most economists expect the US Federal Reserve to hold interest rate hikes this month, they say Reutersas interest rate hikes helped fuel the banking crisis earlier this year, leading to a tightening in the credit markets.
US inflation went further back in April, with prices rising 4.9% year-on-year, well below the 9% peak nearly a year ago. Still, core inflation, which excludes volatile food and energy prices, remains elevated at 5.5%y/y. Core inflation has not fallen below 4.5% since September 2021.
The Bureau of Labor Statistics is due to release its inflation numbers for May on Tuesday morning. The Federal Reserve Bank of Cleveland projects a 4.2% yoy increase in the CPI in May and a 5.3% rise in core inflation.
“Pockets of Need.”‘
Summers is also skeptical about the US’s ability to achieve the hoped-for soft landing—what he called the “triumph of hope over experience” on Monday. (A “soft landing” is when a country manages to control inflation without triggering a recession.)
The former finance minister said he sees “emergencies” in commercial real estate Bloomberg.
The shift to working from home is severely put to the test Office building owners as tenants reduce their footprint by employing more remote workers. Rising interest rates will also lead to an increase in loan payments for borrowers, which will cause some borrowers to default.
A collapse in commercial real estate would then hit lenders, especially small and medium-sized banks. Lenders with assets under $250 billion provide about 80% of commercial real estate loans. according to a recent analysis from Goldman Sachs. In addition, banks are lending less, which is putting more downward pressure on real estate values.
“What’s happening in the office sector is apocalyptic,” said Fred Cordova, founder of real estate brokerage Corion Enterprises, previously wealth.
https://fortune.com/2023/06/12/larry-summers-inflation-us-economy-hot-commercial-real-estate/
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