Larry Summers talks Powell, Trump, tariffs, & US stake in Intel

00:00 Brian Sozzi

we’re digging deeper into all things Federal Reserve and the economy at this important juncture for each Lawrence Summers is a Charles W. Elliot University, professor, and president emeritus at Harvard University and, of course, former U.S. Treasury secretary, Mr. Summers. It’s always nice to get some time with you. Thanks for hopping on this morning. Look, so markets are still very much focused on what Fed chair Jerome Powell said at Jackson Hole, leaning more towards concern about the outlook for the job market. I would love to get your assessment on what we heard from Powell.

00:41 Lawrence Summers

I, I think the markets probably read it right in terms of what he laid the groundwork, uh, for, I’d say I remain very much agnostic on the relative likelihood and relative danger of inflation and unemployment. I worry that it’s now been years since we really had a sustained period of 2%, uh, inflation, and that we probably haven’t seen all the consequences of tariffs, and we’ve seen, we’re seeing probably more pressure on politicization of the Fed than any time in generations. So I think it’s a moment actually to tilt towards concern about maintaining, uh, confidence in the long-term commitment to price stability. Uh, so I would be hoping that the Fed will continue to be very much data-dependent and watching very carefully what happens, uh, both on the inflation statistics and on the unemployment statistics because I think we do have some stagflationary impulses working through the system.

02:51 Brian Sozzi

Part of the reason why the market rally, uh, so aggressively after this, Mr. Summers, of course, is the view that the Fed may continue, not only cut in September, but offer up a series of rate cuts. If they were to do that in line with what the market may be thinking, do they risk, does the Fed risk losing price stability?

03:28 Lawrence Summers

You know, I don’t think these judgments can be made with any confidence till we have, uh, more data. That’s why I would prefer a much more agnostic, uh, posture, uh, from the Fed that expresses less conviction about what it’s going to do in the future and only emphasizes its determination to respond to, uh, incoming, uh, data. It may well prove out that there’s a significant case for, uh, rate cutting, but given the strength in asset markets, given that, uh, you can have tightness in labor markets even with relatively limited employment growth, given the reductions in immigration pressure, and given that you’re going to see a set of price increases in all likelihood associated with the tariffs, I’m not sure which side the balance of risks is really going to point. So I’m not prepared to say that the market forecast is out of line or won’t materialize or shouldn’t materialize, but I would judge the balance of risks to point a bit more towards maintaining inflation, anti-inflation credibility than was my reading of, uh, the chair’s speech.

06:08 Brian Sozzi

Uh, we have seen really an upending of global trade under the Trump administration, of course, with these tariffs. You also have the one big bit of beautiful bill. You’ve been critical of this. If you and I are having this conversation a year from now, that bill starts to kick in, the tariffs are, start to kick in even more, infiltrate the economy, what does inflation look like under that scenario? Let’s see a year from now.

06:53 Lawrence Summers

You know, everybody wants specific forecasts. You know, world where there’s huge uncertainty about what future policy will be and quite apart from, uh, policy. There’s huge uncertainty just as to how the economy is going to evolve, particularly given the huge upsurge in investment in, uh, data centers. I’m reasonably secure in the judgment that we’re going to have more inflation than we would if we didn’t have these substantial tariffs. And I’m reasonably confident in the judgment that probably they’re also deflationary or disinfla, uh, contracting of the economy. I meant to say because they represent a tax increase and an important source of uncertainty. So their effect is going to be negative, but what would happen in the app, in their absence is very hard to judge. So I don’t want to make a specific forecast. I, I think the biggest medium term risk is that we are never going to achieve a successful sustained return to 2%, uh, inflation. And I think if that happens, there will be a general erosion of the Fed’s credibility, which will make macroeconomic management down the road more difficult. And I think the evidence from voting behavior and from surveys is pretty clear that, uh, whatever some economists may think the American people really don’t like significant inflation and don’t like what it cumulates into in terms of higher prices. So I would be placing more concern on that side than I think, uh, so in the markets are or some on the Federal Reserve board are.

10:36 Brian Sozzi

It’s not lost, uh, on many, Mr. Summers, that, uh, this signal by Powell on rates comes after, really, he’s been taken to task. Uh, it hasn’t been easy summer for the Fed chair and in terms of that relationship with the president, of course, the president calling for lower interest rates. Has Jerome Powell put back into question Fed independence?

11:10 Lawrence Summers

I’ve got huge confidence in, uh, Jay Powell’s integrity. And look, uh, there are a lot of actors, um, universities among them, the Fed who face a situation where they’re pressured by the president in an illegitimate and unreasonable way to do things they might have wanted to do anyway. And so I don’t think institutions under pressure should stop doing something just because the president is being a source of pressure on, uh, that thing. So I would, uh, tilt a bit differently or not a huge amount differently than Chairman Powell towards agnosticism about inflation versus unemployment risks, but I don’t think that he’s acting the way he’s acting because of political pressure. I think he’s acting that way out of, uh, conviction. I have great respect for his integrity even at moments where I have had disagreements, uh, with him. And I have to say that the use of prosecution of one’s adversaries, whether it’s the FBI visit to John Bolton’s home or whether it is the kind of attack that has been launched on Lisa Cook is, I think, uh, something that should be chilling, uh, to many Americans and I’m disappointed that we’ve not heard more expression of concern, um, from, for example, uh, the business community because I think if there’s a norm that all kinds of pressure tactics are legal, including bringing the power of law enforcement and investigation and demands for resignation, uh, to bear, if that becomes the new norm in American politics, the way intercession, redistricting is becoming a norm. If we see a erosion

15:39 Lawrence Summers

of our norms. I don’t think that’s going to have big effects immediately economically, but over time, uh, what you might call the Argentinization of the United States is something that I think is a very profound threat.

16:21 Brian Sozzi

Uh, Mr. Summers, if, if Lisa Cook, Fed governor, is in fact fired, um, how should a lot of the CEOs or corporate America view a move like that? What is the longer-term ramifications of that?

16:47 Lawrence Summers

So, I want to be clear that I don’t know the facts of, uh, the case. And obviously any judgment has to be predicated on, uh, the facts, but for a regulatory official to be demanding the resignation of an official outside of the purview of their regulation, as Mr. Polte did, on the basis of data and information that they presumably got from within their regulatory authority is, I think, something that’s, uh, close to unprecedented, at least in, uh, recent years, uh, in the United States. And if you start seeing regulators who traditionally have regulated with respect to rules as prosecutors of, uh, individuals, I think that precedent, that norm potentially could be weaponized in many, many different ways and directions against business people, uh, by people on, all with all different political convictions. And I would hope that there’d be expressions of concern from the judiciary, from, uh, the business, uh, community, from, uh, people of goodwill everywhere.

19:32 Brian Sozzi

Uh, Mr. Summers, before I let you go, you have a very unique view on the future of technology and AI, sitting on that OpenAI board. What do you think about, uh, the government taking a 10% stake in Intel? Is that a good move and one that you want to see?

20:00 Lawrence Summers

I’m surprised by that, uh, move. I don’t know the details of that situation well enough, uh, to, uh, understand the transaction. I can certainly see the logic of the government wanting to get something back for taxpayers when it supports a company that has been poorly run. But it comes as part of a general approach to, uh, policy, what you might call deals-based capitalism rather than rules-based, uh, capitalism. The rather remarkable, and I think extraordinarily problematic trans, uh, action with Intel, where they were given more export controls, uh, freedom in return for payments to the government, the taking of a share in US steel as, um, the price of granting a regulatory approval, the deals struck with law firms after threats against those law firms not to be able to enter, uh, government buildings. The whole approach of deals-based capitalism is, I think, something that is really quite problematic. And I would guess that when I learn all the facts, I will find this Intel transaction to have that aspect, uh, as, uh, as well, but I don’t want to judge the transaction, given that the government is bailing out a company that has been poorly run, uh, without understanding things better.

22:46 Brian Sozzi

Right. We’ll, uh, leave it there. Uh, former, uh, U.S. Treasury secretary, Mr. Lawrence Summers. Always a treat to get some time with you. We appreciate it.

22:59 Lawrence Summers

Thank you.