Larry Summers Issues Stark Recession Warning: Why the Fed’s Next Move Could Shake Markets

H2: Summers warns Washington is “playing with fire” on prices Former U.S. Treasury Secretary Larry Summers says policymakers are underestimating how quickly today’s stable inflation could flare back up, arguing that “once the inflationary genie gets out of the bottle, it is devilishly hard to stuff it back in.” In a recent CNN interview, the Harvard economist cautioned that the Federal Reserve cannot afford to “declare victory” just because headline consumer-price growth cooled in early 2025. H2: Tariff talk adds new fuel to the inflation debate Summers is equally blunt about the White House’s latest tariff offensive. Calling the plan “bizarre” and “naive,” he told Bloomberg that broad levies on steel, aluminum and key consumer goods will “raise costs for every American family and leave the Fed with no good choices”. He argues that tariffs work like a sales-tax hike: • Imports get pricier overnight. • Domestic producers gain cover to raise their own prices. • Wage demands rise as workers chase higher living costs. • The central bank is forced to keep rates elevated longer. H2: From “neutral rate” to “recession risk” Summers, who famously predicted the 2021-22 inflation breakout, now worries that the economy is perched in a “danger zone” where either outcome—re-accelerating prices or a hard landing—remains plausible. On X (formerly Twitter) he wrote that the neutral interest rate may be “a full percentage point higher than the Fed assumes,” implying tighter policy will be needed to pin inflation down for good. H3: What investors are watching 1. Fed guidance at the September FOMC meeting: any hint that officials share Summers’ higher-for-longer view could jolt bond yields. 2. Retailers’ Q3 earnings calls: tariff pass-throughs will show up first in import-heavy sectors such as electronics and apparel. 3. Wage-setting season: autumn union negotiations in transportation and logistics will test whether inflation expectations stay “anchored.” H2: Potential policy offsets Summers says there are still levers to pull: • Freeze new tariffs and restart global supply-chain talks. • Extend temporary gas-tax holidays to cushion consumers. • Accelerate housing-permit approvals to relieve rent pressure. But he warns that Washington’s appetite for bipartisan fixes is fading fast as the 2026 mid-term cycle approaches. “Macro-economic stability is boring,” he quipped on Bloomberg, “and boring doesn’t win votes—until chaos arrives.” H2: Bottom line Summers’ track record on inflation has earned him a megaphone that markets can’t ignore. Whether you agree with his prescription or not, one takeaway is clear: the battle against price spikes is not over, and tariff brinkmanship could make it a whole lot tougher.