Former World Bank chief economist on the likelihood of rate cuts

The next guest needs no introduction.

Or, at least that’s what Stripe co-founder and president John Collison said when Lawrence H. Summers took to the stage at the Stripe Sessions, a global internet economy conference in San Francisco in late April.

But we’ll give one anyway: In his more than 40-year career, Summers, president emeritus of Harvard University, served as 71st Secretary of the Treasury for President Bill Clinton, director of the National Economic Council under President Barack Obama, and as chief economist of the World Bank.

That’s a long way of saying that his take on the state of the economy is about as good as anyone’s. But he’s quick to point out that he’s not some all-knowing oracle.

“Three years ago when we were injecting $2.5 trillion into our economy that I thought had a $300 billion GDP gap, I was pretty confident that that was going to spill over into substantial inflation,” Summers said. “And I just couldn’t understand why everybody wasn’t seeing what I was seeing, and so I said it with a lot of force and a lot of confidence.”

Reflecting on his 40-ish year career, that was one of the moments “when I had the most confident divergence from consensus,” he noted. “At this moment, I don’t have any comparably confident, sharp divergence from consensus.”

Still, it’s not a stretch to assume, as Collison did, that he might have a unique view on inflation right now. Summers’ best guess? “We’re not really on a secure path to inflation becoming at the Fed’s target,” he said.

When it comes to the open mystery of when (and if) the Fed will cut rates this year, he noted that while “the market thinks it’s going to be one to two times, that’s more than I would bet on. But I don’t have an incredibly high conviction that it will turn out to be that way.”

More broadly, Summers thinks “we still are living in a bit of a world of make-believe on macroeconomics.” By way of example, he noted that the Congressional Budget Office has forecast the federal deficit, measured in relation to gross domestic product, will grow to 6.1% in 2025.

“That’s a lot,” Summers said. “But they also assume that the Fed funds interest rate is going to average of 3% over the next 10 years. That seems very unlikely to me. I think it will be higher. They also assume that all of the tax cuts that President Trump legislated that are supposed to phase out will in fact be allowed to phase out. That seems extremely unlikely to me.”