Summers: Fed 'Lost Its Way' by Talking Environment, Social Justice While Dismissing Inflation and Still Has 'Problematic Groupthink'

During 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 that the Federal Reserve “lost its way” by talking about the environment and social justice while dismissing inflation concerns in 2021 and he doesn’t think the Federal Reserve’s problems are completely fixed because their projections still show “a degree of highly problematic groupthink.” Summers stated, “I think in 2021, our central bank lost its way. It was talking about the environment. It was talking about social justice in a range of things. It was confidently dismissing concerns about inflation as transitory, and it made mistakes in the core functioning of a central bank, including leaning into highly expansive fiscal policies rather than accommodating them as our central bank did. So, I don’t think we were...asking too much of our central bank. But I think, in 2021, our central bank let us down quite badly. And as a consequence, they find themselves in a very, very difficult position, not least because they don’t have the credibility that they once enjoyed, given their repeated poor forecasting record.” He continued, “And I have to say that it’s not something that’s been fully fixed.

Their most recent dot plot is suggesting that unemployment would get to — get only to 4.1%, even as inflation came completely down. That seemed to me to be highly implausible. And the fact that the most pessimistic person of the 19-member Open Market Committee was saying 4.5% seemed to me to suggest a degree of highly problematic groupthink.” Follow Ian Hanchett on Twitter @IanHanchett.

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