Fed Rate Cut Now Would Be ‘Playing With Fire’ Amid Risk of Credibility Loss, Says Former Treasury Secretary Larry Summers

Former U.S. Treasury Secretary Larry Summers believes there is no urgent need for the Federal Reserve to cut interest rates.

In a new Bloomberg interview, Summers says instituting a rate cut now would be akin to “playing with fire.”

According to the former Treasury Secretary, the Federal Reserve is better off waiting a bit longer for more economic data to make a more informed decision on the Fed Funds rate.

Says Summers,

“There certainly are some risks of a downturn. There are also some inflationary risks coming from the tariffs, coming from general economic strength. And so [Fed Chair Jerome Powell] decided not to commit but to preserve flexibility. I think that was the right course of action for him to take. If the economy turns down, there’s the scope to cut rates very rapidly. But if inflation’s a problem, there’s a risk of a loss of credibility.”

During the last Federal Open Market Committee (FOMC) meeting held in late July, the Fed decided to keep the benchmark rate steady. The next FOMC meeting is scheduled for September 16th to 17th.

Earlier this month, Charles Schwab’s chief investment strategist, Liz Ann Sonders, said the Federal Reserve’s decision to hold rates steady amid pressure from President Donald Trump to cut was one of the reasons the markets had remained bullish.

“I think part of the reason why the market is doing well is because the Fed is not cutting. A combination of… because they’re not bowing to political pressure. And by the way, neither side of their dual mandate suggests that they should be cutting.”

Generated Image: Midjourney