Larry Summers, a former Treasury Secretary, is cautioning against a potential rate cut by the Federal Reserve, stating that it would be a grave mistake. In an interview with Bloomberg Television, Summers discusses the latest core consumer price index (CPI) numbers, which exceeded expectations, and argues that the presence of accelerated inflation should not come as a surprise.

Summers recently co-authored a paper that aimed to present a different and more accurate perspective on inflation by incorporating economist Arthur Okun’s pre-1983 system of measuring inflation. This system considered personal interest rates and housing financing costs. The paper contends that the Fed’s current data, which employs the concept of “supercore inflation,” significantly underestimates the extent of inflation in the US.

Considering that inflation is likely much higher than officially reported, Summers believes that a rate cut in June would be a serious error on the part of the Federal Reserve. He emphasizes that the concept of supercore inflation, which excludes temporary factors and includes housing costs, highlights an inflation rate of over 6%. Furthermore, the three-month rate exceeds the six-month rate, which in turn exceeds the one-year rate. This suggests that the neutral rate is significantly higher than the 2.6% level used by the Fed as a benchmark.

Summers asserts that it is crucial to consider the possibility that the next rate adjustment will be an increase rather than a decrease. While he acknowledges that unforeseen events such as market crashes or downturns in indicators could occur, based on the current data, a rate cut in June would be a dangerous and significant mistake, comparable to the Fed’s errors in the summer of 2021 when it failed to address inflation adequately.