On September 20, former U.S. Treasury Secretary Summers said that inflation may prevent the Federal Reserve from cutting interest rates as much as expected in the next few years. He said, "In terms of monetary policy, if the Federal Reserve wants to actually cut interest rates as much as it predicts, it will face the risk of rising inflation."
In their latest dot plot, Fed policymakers predicted a median federal funds rate of 3.4% at the end of next year, which would mean a possible 150 basis point cut on top of the 50 basis point cut announced on Wednesday.
Summers said that if inflation pressures return, interest rates will not fall as much as officials predict on their dot plots, and he warned that investors also overestimated the Fed's next easing efforts.
