(MENAFN) Former Treasury Secretary Larry Summers has warned that despite the Federal Reserve's efforts to combat high inflation, the U.S. economy is heading towards a "collision." Speaking in an interview with Bloomberg News, Summers, a Harvard University professor who served in both the Clinton and Obama administrations, noted that recent indications of strong underlying inflationary pressures in the economy suggest that the Fed's tighter monetary policy is having only a limited impact.
Summers suggested that despite the Fed's attempts to put the brakes on the economy, it does not appear to be gaining much traction. Over the past year, the Fed has voted to raise its benchmark interest rate from zero to a range of 4.5 percent to 4.75 percent, and policymakers signaled at their last meeting that a "couple more" increases are on the table this year. However, inflation remains uncomfortably high, and last week, the Labor Department reported that the consumer price index rose by 0.5% in January, the most in three months. The annual inflation rate also surprised to the upside at 6.4%, highlighting the persistence of high consumer prices that have become widespread throughout the economy.
These inflationary pressures have been fueled by a number of factors, including supply chain disruptions and labor shortages caused by the pandemic. As a result, the cost of many goods and services has risen, putting a strain on American households and potentially dampening economic growth. Despite the Fed's best efforts, it appears that inflation is likely to remain elevated for the foreseeable future, creating a challenging economic environment for policymakers to navigate.
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