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Here's Why Larry Summers Thinks There's A New Recession Looming

Former U.S. Treasury Secretary says inflation has become so entrenched that there’s now a “30% to 40%” chance of a recession over the next 24 months.

Former U.S. Treasury Secretary Larry Summers says that inflation has now created a “30% to 40%” chance of a recession over the next 24 months, according to Reuters

The Harvard University economist also pegged the odds of a “soft landing,” in which the Federal Reserve could take moves to lower inflation without triggering a recession, at about “20% to 25%.”

“The evidence is that engineering a soft landing is a very difficult thing to do in a rapidly growing, inflation economy,” Summers said at The Wall Street Journal’s CEO Council Summit.

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The main problem, as Summers sees it, is that the U.S. is contending with biggest labor shortage he’s ever experienced. 

During the pandemic, records numbers of American took the time reconsider their careers, many left their job, transferred to different industries or went back to school. 

In what has been termed “The Great Resignation,” a record 4.4. million people, or 3% of workers, quit their jobs in September alone, according to the Labor Department. 

Now, this move might have been good for people’s mental health and quality of life, but it’s been a tough blow for the economy to absorb. A lack of workers, coupled with the ongoing pandemic-related supply chain issues, is making it harder to book a flight or buy a holiday present, thus increasing inflation.

Summers says that there is a “better than 50%” chance of the economy eventually returning to the pre-pandemic levels of stability.