CNBC - Larry Summers: US Economy is Just One Bad Recession Away From Zero Rates or Worse

Article by Jessica Bursztynsky in CNBC financial

The United States is just one bad recession away from being right back at zero interest rates or even lower, Larry Summers warned on CNBC on Monday.

“It’s a very different world when everyone’s stuck at zero interest rates,” said Summers, a critic of President Donald Trump who served as former President Bill Clinton’s Treasury secretary and as an economic advisor for former President Barack Obama.

“We’ll have to think about stabilization policy. Institutions are going to have to think about their investment policy in a very different world when we have a black hole, zero interest rate world,” Summers said on “Squawk on the Street.”

“I fear that’s what we’re headed into,” the Harvard economics professor warned, pointing to Japan’s economy, which has experienced decades of stagnation. The Japanese central bank, the Bank of Japan, embarked on its journey into negative rates in 2016, about two years after the European Central Bank.

Without major change in the U.S., Summers predicts there’s little chance of policy rates set by the Federal Reserve staying above zero. “We’re one recession away from a situation of that kind.”

The Fed this year has twice cut rates by a quarter point — as concerns of a global economic downturn, slowing the U.S. economy, intensify. The market expects at least one more Fed rate cut before 2020.

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