US recession's probability is increasing According to Summers

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Former Treasury Secretary Lawrence Summers stated that the probability of a US recession is increasing as a result of a string of weak economic indicators and that the Federal Reserve is getting closer to the end of its transformation-rate hike cycle.

According to Summers, the probability of a US recession is increasing.

Summers said According to Bloomberg, Television’s “Wall Street Week” with David Westin, “What’s pretty clear is that we’re in the very late innings of the present tightening cycle.”

“Whether another move is necessary or not, I think that’s an assessment. That they should be deferring until the very last kind of moment,” he said of Fed politicians. Whose next decision is due on May 3.

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The rate of joblessness fell to 3.5%

Summers dismissed Friday’s March jobs report, saying it expressed the economy’s strength. Early in the first period but is now less important given the prospect of credit tightening. The data showed another solid increase in US payrolls, with the rate of joblessness falling to 3.5%.

In contrast, transformation-than-expected purchasing manager surveys for services and manufacturing released this week revealed a slower-than-expected slowdown in activity. The factory gauge of the ISM fell to its lowest level since the beginning of 2020. Other data released this week showed a decrease in openings for employment, an increase in the trend for unemployment claims.

“We’re getting a sense that there’s some significant quantity of credit constriction,” said Summers, a Harvard University professor. “At this point, the chances of an economic downturn are increasing.” And I believe the Fed faces extremely difficult choices ahead, with a high degree of uncertainty on both sides.”

US Summers explained that these two-sided risks

Summers explained that these two-sided risks reflect the implications of economic overheating. He urged the Fed to carry out a thorough review of its own internal models. Which did not work to predict the surge in inflation that began in 2021. And failed to capture the risks arising in the banking system that were brought to light by Silicon Valley Bank’s failure last month.

Summers stated, “The Fed needs to do some serious soul-searching.”

“The Fed’s company as typical has not been profitable over the last two and a half years.”