Tech entrepreneur Elon Musk weighed in on the inflation debate as Federal Reserve policymakers prepared to convene for a two-day meeting at which markets expect the central bank to deliver another large rate hike to cool soaring prices.
Musk took to Twitter on Sept. 19 to argue that former Treasury Secretary Larry Summers had made a “fundamental error” in viewing the current bout of inflation as similar to the 1970s and deeply entrenched.
“Yes, the fundamental error is reasoning by analogy, rather than first principles,” Musk wrote in response to a message by Ark Invest CEO and CIO Cathie Wood, who argued that Summers “seems to be leading the Biden administration astray with his conviction that inflation is intractable, with the 1970s as his guide.”
Wood added in a follow-on message that the current bout of inflation started with the pandemic and supply-chain dislocations, and was made worse by Russia’s invasion of Ukraine.
“The Fed is solving supply-chain issues by crushing demand and, in my view, unleashing deflation, setting it up for a major pivot,” she argued, prompting Musk to respond with his concurrence.
Musk’s remarks feed into the current debate around whether the Fed is hiking too much or too little, and whether more inflation—or deflation—is in the pipeline as the economy cools.
Inflation or Deflation?
Summers told Bloomberg’s “Wall Street Week” in a recent interview that the Fed acted too slowly on soaring inflation and that the central bank now needs to keep hiking aggressively to tamp down price pressures.
“History records many, many instances when policy adjustments to inflation were excessively delayed and there were very substantial costs,” Summers said, noting that the most significant example of such costs was during the long period of high inflation during the 1970s.
Summers added that he saw evidence that inflation had become entrenched. He pointed to core inflation rising more than 6 percent in August, as well as sharp wage boosts for job-switchers and rising input costs in the housing sector.