When voters feel pain in the pocketbook, politicians beware.
That was the message from former United States Treasury Secretary Larry Summers in a string of threads posted on Twitter on Monday in which he warned that rising inflation risks landing former President Donald Trump back in the White House.
“Excessive inflation and a sense that it was not being controlled helped elect Richard Nixon and Ronald Reagan, and risks bringing Donald Trump back to power,” Summers warned.
US consumers prices surged at the fastest rate in 30 years in October, the US Department of Labor said last week.
Supply chain snarls and shortages of raw materials and workers are raising prices for US businesses, which in turn are increasingly passing those higher costs on to American consumers.
That matters deeply to the health of the US economy given that two-thirds of its growth is driven by consumer spending.
Rising inflation and the perception that not enough is being done to contain rising prices helped drive US consumer confidence to a 10-year low in November, the University of Michigan said in its latest survey.
So far, the steward of the US economy, the Federal Reserve, has been unconcerned about this year’s rise in inflation, insisting that price pressures will prove “transitory” and eventually ease down.
At its last policy-setting meeting, the Fed decided to start dialling back bond purchases that have helped buoy the economy during the coronavirus pandemic. But it said that should not be taken as a signal that it is ready to raise interest rates any time soon.
Summers, who served as US Treasury Secretary between 1999 and 2001, published an opinion piece (paywall) in The Washington Post on Monday in which he said that the Federal Reserve and the administration of President Joe Biden need to adjust their thinking on inflation.
On Twitter, Summers advocated for four policy actions to respond to rising prices, including not rejecting Biden’s Build Back Better legislation, which he said “will have only a negligible impact on inflation”.
Summers also said that the Fed should unwind its bond purchases faster and that the candidates Biden taps for positions with the Federal Reserve need to recognise that the major challenge for the nation’s central bank right now is containing rising prices.
Finally, he called on the Biden administration to signal that inflationary concerns “will inform its policies generally”, suggesting that the White House prioritise tariff reduction and buying cheaper goods over buying American-made goods.
Opinion | On inflation, it’s past time for team ‘transitory’ to stand down
Read my column on inflation and four policy prescriptions we need to do now.https://t.co/hXCKjh3i5t
— Lawrence H. Summers (@LHSummers) November 15, 2021