Former U.S. Treasury Secretary Warns Trump: Fulfill Campaign Promises, Face Inflation

Former U.S. Treasury Secretary Lawrence Summers has issued a stark warning to Donald Trump, the Republican presidential nominee, regarding the potential inflationary impact of fulfilling his campaign promises. In an interview with Bloomberg Television, Summers, a Harvard University professor and paid contributor to the network, expressed his concern about Trump's suggestion that the president should have some "say" in Federal Reserve policy setting.

Summers, who served in top economic positions in the Democratic administrations of Bill Clinton and Barack Obama, argued that politicians, including Trump, would always be tempted to print more money and lower interest rates to boost the economy. This, in turn, would raise expectations for inflation and push up longer-term interest rates, resulting in more inflation and no substantial output gain.

Trump's proposed tariffs and immigration policies could also contribute to inflation, according to Summers. Trump's 10% across-the-board tariffs on all imports, along with high tariffs on Chinese goods, would increase prices for American families, making U.S. businesses less competitive. Additionally, deporting immigrants could shrink the labor force, creating more competition for U.S. workers and pushing up wages, further fueling inflation.

Summers highlighted that countries across the globe have endowed their central banks with independence in recognition of the conflict of interest for politicians with regard to monetary policy. Political office holders will "always be tempted to print more money, lower interest rates — hit the accelerator hard to get a boost to the economy," he said. Such pressure raises the people's expectations for inflation, pushing up longer-term interest rates, and ultimately leading to more inflation and no substantial output gain.

Summers cited the example of former President Richard Nixon, who pushed then-Fed Chair Arthur Burns into easier monetary policy in the early 1970s, triggering a costly inflationary boom-bust cycle. He also referenced "innumerable" cases in Latin America where independent central banks tamped down inflation.

To mitigate inflationary risks, Trump could reverse his proposed tariffs and support an independent Federal Reserve, allowing it to maintain its focus on constant economic scrutiny and monetary policy. However, it remains to be seen whether Trump will heed Summers' warning and alter his economic agenda to avoid the potential inflationary consequences.

In conclusion, former U.S. Treasury Secretary Lawrence Summers has sounded the alarm on the potential inflationary impact of Trump's proposed policies. While Trump has suggested presidential sway over the Fed, Summers argues that such influence would lead to higher inflation and a weaker economy. To avoid these risks, Trump should reconsider his proposed tariffs and immigration policies and support an independent Federal Reserve.