The 'greatest tragedy' would be if central banks don't finish the job on inflation, Larry Summers says – CNBC

Larry Summers at the World Economic Forum in Davos, Switzerland.

David A. Grogan | CNBC

Former U.S. Treasury Secretary Larry Summers said it would be the “greatest tragedy” for the global economy if central banks didn’t finish what they started to bring inflation back to Earth.

Central banks around the world are aggressively tightened monetary policy Annual consumer price inflation is at decades or even record highs in most major economies.

the economist be cautiously optimistic Recent data suggests a slowdown in inflation, which could allow policy makers to ease and eventually halt an aggressive rate hike cycle.

Speaking at a panel moderated by CNBC World Economic Forum in DavosSwitzerland, Friday, Summers said economists and business leaders at the summit were experiencing an “exhilaration of relief”, but warned policymakers not to rest on their laurels.

“Hyperpopulists lost elections and accepted defeat. Europe did not freeze, recession did not come, China adjusted its policy towards the world, inflation slowed. That’s why I feel better than I felt months ago,” Summers told CNBC’s Jeff Cutmore.

“But we must not rest on our laurels. Inflation has fallen, but temporary factors have contributed to lower inflation in the same way that temporary factors have pushed inflation up before. And like many trips, the last part of the trip is often the most difficult.”

Recent data show signs that inflation is entering a sustained downward trajectory, well above most central bank targets.Therefore, policy makers should maintained a hawkish tone Despite the perceived economic risks of persistently high interest rates.

“The biggest tragedy at the moment is that central banks will have to prematurely move away from their focus on ensuring price stability and have to fight this battle twice,” Summers said.

He added that he was encouraged by recent comments. federal reserve with Chairman Jerome Powell European Central Bank President Christine Lagarde.

“If we allow inflation to skyrocket, it not only jeopardizes price stability, the living standards of some of the lowest income earners, but also poses enormous risks to cyclical stability. , we have to get through it,” he said.

“At the same time, we need to remember the importance of those who are left behind and bear the greatest burden from all these necessary adjustments, both in our country and around the world. It will be important to. First.”

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