Summers Sees Nearly 50-50 Odds Fed Must Hike to 6% or Higher

Former Treasury Secretary Lawrence Summers said that the odds are now almost even that the Federal Reserve will have to raise its benchmark interest rate to 6% or more to bring inflation back down to its 2% target.

“My guess now is that it’s nearly 50-50 that we’re going to get to — and need to get to — 6% fed funds, or above,” Summers said on Bloomberg Television’s “Wall Street Week” with David Westin.

Summers spoke shortly after the February US employment report showed a stronger-than-expected gain in payrolls, though the unemployment rate rose as more people came into the workforce. Average hourly earnings also slowed.

He said the mixed figures made it a “difficult” release to interpret, but the broader picture shows that the Fed’s current settings for rates “aren’t enough to really apply a lot of restraint.”

“Right now, it looks like the economy is strong for the near term — and that’s a very good thing, but it points to risks of inflation or a hard landing down the road,” said Summers, a Harvard University professor and paid contributor to Bloomberg Television. “So I think we’re still going above the speed limit.”