Summers: Decreasing Inflation Will Require 5% Unemployment, It'll Need to Be Around 6% to Hit Inflation Target

During a portion of an interview aired on Friday’s edition of Bloomberg’s “Wall Street Week,” Harvard Professor, economist, Director of the National Economic Council under President Barack Obama, and Treasury Secretary under President Bill Clinton Larry Summers said he believes in order to bring inflation down, we’ll have to get unemployment above the Non-Accelerating Inflation Rate of Unemployment (NAIRU), which he believes is around 5%, and reaching the target of 2% inflation will likely require “an unemployment rate that approaches or exceeds 6%.” Summers stated that the increase in labor force participation is a “positive development for the economy,” but “my guess is that things are much less good than the Fed has supposed. My estimate would be that the NAIRU is now near 5%. I don’t see how you can fail to think that the NAIRU has risen substantially, when you look at how much there’s been an increase in vacancies at a given unemployment rate...when you look at the big increases in quit rates that we’ve seen, when you look at wage behavior. And I add all that up and I see a difficult situation where I think that, to start bringing down inflation, we’re going to need to get above the NAIRU, that’s probably somewhere in the 5% range. And I think we do have to achieve some meaningful amount of disinflation. So, I’ve said that I’d be surprised if we get to...the 2% inflation target without an unemployment rate that approaches or exceeds 6%.” Follow Ian Hanchett on Twitter @IanHanchett.

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