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Lawrence Summers and IMF director both say odds of soft landing for U.S. are improving

MarketWatch logo MarketWatch 2/6/2023 Mike Murphy
© Bloomberg

“It looks more possible that we’ll have a soft landing than it did a few months ago.”

Those were the words of former Treasury Secretary Lawrence Summers on Sunday, offering hope that the U.S. economy can avoid recession, but warning that inflation is still far too high.

In an interview on CNN’s “Fareed Zakaria GPS” on Sunday morning, Summers said he’s “encouraged, but I still think it would be a mistake to say we’re out of the woods.”

In early 2021, Summers was one of the loudest voices warning that pandemic stimulus policies would trigger an inflation crisis, and has been a frequent critic of the Fed since, saying last year that “our central bank let us down quite badly “ in 2021.

He has also been skeptical that the U.S. will be able to avoid a so-called soft landing, in which the Fed manages to slow down the economy to bring down inflation while avoiding falling into recession. In September, for example, he said at Salesforce Inc.’s Dreamforce conference in San Francisco that “We’re unlikely to be able to achieve a soft and easy landing.”

But Summers sounded more optimistic Sunday.

 “I’ve said often that soft landings are, as Samuel Johnson said of second marriage, the triumph of hope over experience,” he said, according to a CNN transcript. “But from time to time, hope does triumph over experience. So it looks more possible that we’ll have a soft landing than it did a few months ago.”

Inflation, though, is “still unimaginably high from the perspective of two or three years ago, and that getting the rest of the way back to target inflation may still prove to be quite difficult,” he said.

Separately, Kristalina Georgieva, managing director of the International Monetary Fund, said much the same in an interview that aired Sunday night on CBS’s “60 Minutes.”

Georgieva said that while the global economy faces slower growth, the situation “is less dire than it was just two months ago,” though still “very concerning,” according to a CBS transcript.

She said that despite a slowdown, “based on the data we have today, we think the U.S. would be able to go through the year narrowly avoiding falling into recession,” and that there remains “a possibility for a soft landing.”

She also stressed that the Fed should “stay the course” until inflation eases, and must be “very careful not to start easing financial conditions prematurely.”

Georgieva added that while the IMF is forecasting a weaker job market by year’s end, “we are not scared of some big unemployment wave swiping through the United States.”

Last June, Summers said the U.S. needs a surge in unemployment to curb inflation — a one-year spike that would cause about 10 million jobs to be lost. On Friday, the latest federal jobs report found 517,000 new jobs were created in January — a six-month high — and unemployment fell to 3.4%, a 54-year low.

Summers again argued Sunday that fewer jobs in the short term would be a worthy tradeoff for lower inflation, because — based on “almost all economic theories” — by keeping unemployment so low for the long term, inflation will become “entrenched, and “we’re going to live with that inflation for a long time.”


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