<a href="https://www.thenationalnews.com/business/economy/covid-19-pandemic-will-cost-us-an-estimated-16tn-summers-says-1.1092745" target="_blank">Former treasury secretary Lawrence Summers </a>has said that the <a href="https://www.thenationalnews.com/business/economy/2022/12/02/november-us-job-gains-defy-expectations-piling-pressure-on-federal-reserve/" target="_blank">Federal Reserve</a> will probably need to raise interest rates more than markets are currently expecting, thanks to stubbornly high inflationary pressures. “We have a long way to go to get inflation down” to the Fed’s target, Mr Summers told Bloomberg Television’s “Wall Street Week” with David Westin. As for Fed policymakers, “I suspect they’re going to need more increases in interest rates than the market is now judging or than they’re now saying.” <a href="https://www.thenationalnews.com/business/economy/2022/11/03/gcc-central-banks-raise-interest-rates-after-feds-fourth-consecutive-75-bps-increase/" target="_blank">Interest-rate futures suggest traders expect the Fed</a> to raise rates to about 5 per cent by May 2023, compared with the current target range of 3.75 per cent to 4 per cent. Economists expect a <a href="https://www.thenationalnews.com/business/economy/2022/09/21/federal-reserve-poised-to-deliver-on-its-painful-promise/" target="_blank">50-basis point increase at the December 13-14 policy meeting,</a> when Fed officials are also scheduled to release fresh projections for the key rate. “Six is certainly a scenario we can write,” Mr Summers said with regard to the peak percentage rate for the Fed’s benchmark. “And that tells me that five is not a good best guess.” Mr Summers was speaking hours after the<a href="https://www.thenationalnews.com/business/economy/2022/12/02/november-us-job-gains-defy-expectations-piling-pressure-on-federal-reserve/" target="_blank"> latest US monthly jobs report </a>showed an unexpected jump in average hourly earnings gains. He said those figures showcased continuing strong price pressures in the economy. “For my money, the best single measure of core underlying inflation is to look at wages,” said Mr Summers, a Harvard University professor and paid contributor to Bloomberg Television. “My sense is that inflation is going to be a little more sustained than what people are looking for.” Average hourly earnings rose 0.6 per cent in November in a broad-based gain that was the biggest since January, and were up 5.1 per cent from a year earlier. Wages for production and nonsupervisory workers climbed 0.7 per cent from the prior month, the most in almost a year. While a number of US indicators have suggested limited impact so far from the Fed’s tightening campaign, Mr Summers cautioned that change tends to occur suddenly. “There are all these mechanisms that kick in,” he said. “At a certain point, consumers run out of their savings and then you have a Wile E Coyote kind of moment,” he said in reference to the cartoon character that falls off a cliff. In the housing market, there tends to be a sudden rush of sellers putting their properties on the market when prices start to drop, he said. And “at a certain point, you see credit drying up,” forcing repayment problems, he said. “Once you get into a negative situation, there’s an avalanche aspect — and I think we have a real risk that that’s going to happen at some point” for the US economy, Mr Summers said. “I don’t know when it’s going to come,” he said of a downturn. “But when it kicks in, I suspect it’ll be fairly forceful.” The former treasury chief also warned that “this is going to be a relatively high-interest-rate recession, not like the low-interest-rate recessions we’ve seen in the past.” Mr Summers reiterated that he didn’t think the Fed ought to change its inflation target to, say, 3 per cent, from the current 2 per cent — in part because of potential credibility issues after having allowed inflation to surge so high the past two years.