The "high inflation whistleblower" in the United States warns again after four years! Inflation may explode, and the Federal Reserve's current round of interest rate cuts may come to an end

Four years ago, the "high inflation whistleblower" and former Treasury Secretary Larry Summers accused U.S. fiscal and monetary policymakers of excessively stimulating the economy, believing that such actions could trigger the largest inflation surge in a generation. Now, four years later, he warns again that there is a risk of renewed price pressures.

In an interview with Bloomberg, he stated:

Since the policy missteps in 2021 triggered severe inflation, this may be the most sensitive moment for inflation escalation.

Now is a time when we must remain highly vigilant about inflation, even before the White House implements new policies.

Summers pointed out signs of tightness in the U.S. labor market, including last week's January non-farm payroll data showing significant wage growth, which has laid the groundwork for a potential rebound in consumer prices. This is still before any measures have been introduced by the new U.S. government. Subsequently, President Trump introduced tariff-related policies and threats.

Summers urged the Federal Reserve to remain vigilant about price pressures and believes that there may not be further rate cuts in the current cycle.

Summers said, "This is not a matter of probability, but rather a very real possibility at this time—that the Fed's next move will be to raise interest rates rather than lower them. Now is an especially dangerous time for any form of cost shock, any rhetoric that undermines inflation confidence, and any fiscally irresponsible measures."

Federal Reserve Chairman Jerome Powell reiterated his view from last month during a Senate hearing on Tuesday: after cumulatively lowering the benchmark interest rate by 1 percentage point in the last few months of 2024, the Fed currently has no urgency to cut rates again.

As early as the beginning of 2021, Summers warned that former President Biden's $1.9 trillion fiscal plan posed a risk of fueling inflation, a statement that unsettled some Democratic colleagues. He also criticized the Fed for not paying enough attention to price risks.

Powell admitted in March 2022, "In hindsight, we should have raised rates sooner." However, in stark contrast, the Biden team insisted on defending their policy stance. Former Treasury Secretary Janet Yellen believed that a greater mistake would be inadequate measures, ultimately leaving long-term scars on the labor market.

Now, many economists warn that Trump's measures to expel undocumented immigrants and tighten border controls could exacerbate pressures in the labor market. Additionally, the increase in tariffs could at least trigger a one-time rise in price levels, potentially leading to sustained price increases.

The U.S. January non-farm payroll report showed an increase of 143,000 jobs, below the median forecast of economists, with average hourly wages rising by 0.5% month-on-month, exceeding all economists' predictions. Summers pointed out:

The revised non-farm data for the previous two months collectively added 100,000 jobs.

The San Francisco Fed's weather-adjusted estimates indicate that the new jobs in January exceeded 200,000.

The related employment growth far exceeds the capacity that the U.S. economy typically absorbs, especially under the current immigration situation. Therefore, significant wage growth is not surprising

The University of Michigan's survey shows higher inflation expectations. On Monday, an independent survey by the New York Federal Reserve also indicated signs of rising inflation expectations