Former US Treasury Secretary Lawrence H. Summers has made headlines in the US since the end of last year when he said the package of direct payments to citizens, the size that was being proposed, was “a serious mistake” and could generate higher inflation desired.
Speaking to Brazilian investors this Tuesday, 14, Summers commented on his positioning and inflation risks by participating in the MacroDay 2021, event of BTG Pactual bank (from the same group that controls the EXAM).
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The professor was Treasury secretary in the Bill Clinton administration, between July 1999 and January 2000, in addition to having participated in the Barack Obama administration, and was vice president of the World Bank, among other positions.
Summers has appeared in the American debate as one of the names most concerned about inflation, and he reiterated his more cautious view on the subject.
He said on Tuesday that he has “a lot of respect” for the team at the Federal Reserve, the US central bank, and that he believes they are very prepared to decide, but he still sees an underestimated notion of risk.
“After extensive experience with false inflation alarms, there is a natural tendency to run the other way,” he said. “And I don’t think that’s just the Fed.”
“The idea that you need to act [contra a inflação] while covid is still a problem, it is a counterintuitive notion,” he said.
The Fed continues with an interest rate between 0 and 0.25%, while consumer inflation closed August at an increase of 5.3% compared to the previous year.
There is some expectation that there could be an increase in order to control the pressure from the demand side, but the big question among market players at the moment is how out of control inflation can get and when the Fed should act.
“Monetary policy operates in a one-year gap,” he says of the dilemma of how much and when CBs should act. “Then you will act on the monetary policy front on a problem that has already happened.”
Inflation has been on the radar of governments, investors and citizens around the world, partly driven by the economic recovery and, on the other hand, by injecting money into the economy ahead of demand – in the US, as part of the 1, 9 trillion dollars from President Joe Biden, checks for 1,400 dollars were distributed to Americans.
One of Summers’ arguments is that there are structural changes that will make it impossible to take measures on inflation only when the US reaches its pre-covid employment rate, which was around 3.5%, in full employment. .
At the moment, unemployment is at 5.2%, but there is a shortage of labor in several sectors.
Summers reckons that many “will not be back to work anytime soon” and that there will be profound changes in consumer habits.
In addition to the heated demand, given the great global dependence of China’s supply chain, he is betting that supply shocks will continue to be a problem.
On the impacts these changes could have on assets and investors, Summers responds: “I always tell my friends in the market that you think more about policy makers than they think about you,” he joked.
On another front, the former secretary also commented on the relationship between China and the US and the impacts on the global economy, saying he does not believe the dollar is close to losing its global leadership.
Summers cited examples of recent Chinese government forays against the private sector, such as regulation of technology companies, and said such moves make clear that the Chinese yuan is still far from beating the dollar as a reserve mechanism.
Despite this, he assesses that it is desirable to solve the global crises that the US and China expand their cooperation, and, without citing the government of Republican Donald Trump, says he is “not sure” that the advances against China, as in taxing products, were actually needed.
“In the medium term, I’m looking forward to it,” he says, citing the trade war between the countries, taxation of Chinese and American products and disputes over Taiwan.
“My best guess is that we’ll get out of this spiral, but we’re not out yet,” he says. He points out that, despite this, the two serious crises of the moment are climate change and the pandemic. “And it’s hard to see how we’re going to resolve them without more cooperation than we have now.”
Caution with cryptocurrencies
Also asked about cryptocurrencies and blockchain In the global currency debate, Summers believes the blockchain will continue to be very important in the advancement of innovation around the world, but he is more cautious about cryptocurrencies.
“I’m much more convinced that the blockchain is going to be much more important in ten years than any private cryptocurrency.”
His bet is that currencies such as bitcoin may, in the future, consistently hit or surpass gold, but volatility still prevents the asset from being treated as a store of value and exchange.
“Cryptocurrencies will likely find their place in many institutional portfolios,” he said. “But its use as an exchange ID would be more surprising to me”
“What do you get [com bitcoin] beyond the hope of selling it for more money later?” he said. “Then I think everyone has to make their own judgment about it.”
On the digital currency front, Summers is also not betting that the Fed will pursue some kind of dollar digital currency any time soon, contrary to what China has been testing with the yuan.