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Fed tightening is impacting the U.S. economy: Former U.S. treasury secretary
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The Federal Reserve Board building, Washington, D.C., U.S., July 1, 2020. /CFP

The Federal Reserve Board building, Washington, D.C., U.S., July 1, 2020. /CFP

The  Federal Reserve's tightening actions are having an impact on the U.S. economy, with a turn in labor demand and inventory buildups, former U.S. Treasury Secretary Lawrence Summers said.

"We're seeing a little bit of indications that some firms are no longer reporting the kind of huge labor shortages that they were before," Summers was quoted by Bloomberg on Saturday. "We're seeing some indications of inventory buildups," he added.

However, the overall picture remains as a "very stretched economy," according to Summers.

Summers noted that history has shown that a recession will occur in two years when inflation exceeded 4 percent and unemployment drops below 4 percent.

"My best guess would be that's what we'll see this time round," said the former Treasury chief, adding that the U.S. doesn't have the tools to bring this down smoothly after excess demand was resulted from fiscal stimulus last year.

"There may not be any path of monetary policy that enables inflation to come down to the 2-3 percent range, and also keeps the economy growing rapidly," said Summers.

Fed Vice Chair Lael Brainard expected that the U.S. central bank will raise interest rates by 0.5 percentage point this month and in July.

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