Larry Summers isn't mincing words when it comes to Federal Reserve policy: he thinks it's way off.
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LARRY SUMMERS: 'The Fed is not credible with the markets'
The Fed's narrative doesn't align with the markets.
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In a stinging new post in the Washington Post's Wonkblog, the former Treasury Secretary and Harvard economist says the central bank has lost crediblity with financial markets because of its consistently misguided optimism about growth prospects and the Fed's ability to raise interest rates.
Summers is not so concerned with this week's interest rate increase itself, but rather with the way Fed officials think about the tradeoff between inflation and employment, a construct economists call the Phillips Curve.
Summers suggests that by allowing inflation to consistently undershoot its 2% target, the Fed is not only missing an opportunity to create millions more jobs, but also placing the economy in a needlessly precarious position.
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here is good reason to believe that a given level of rates is much less expansionary than it used to be given the structural forces operating to raise saving propensities and reduce investment propensities," he writes.
Some economists have recently advocated the Fed adopt a higher inflation target, which Summers says "w
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