Former Minister of Finance Lawrence H Sommer believes that the United States is facing very complex macroeconomic challenges, but said that the current situation does not involve low unemployment and is not as severe as the 2009 financial crisis or inflation in the 1970s.

“Cracking inflation is paramount, but we can’t stop there,” he tweeted.

Related Issues: Summers pointed out that the number of serious, interrelated issues that require attention stands out.

“First, an economy that even progressives like @paulkrugman recognize as overheated is operating with a core inflation rate of nearly 7 percent and is not yet declining,” he tweeted.

There is also a consensus prediction of a recession beginning in 2023, he said, adding that the Federal Reserve simply cannot bring inflation down to 2% without unemployment rising above 4.4%.

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Summers also highlighted how the Fed had hiked rates in ways markets would have thought unlikely just a year ago. Markets are reeling from the shock, with the possibility that normal trading in the government bond market could collapse, which if left unchecked would have significant repercussions, he argued.

Summers also pointed out that the global economy is being challenged by rising US interest rates and a record dollar exchange rate against some key currencies, while the aftermath of the war in Ukraine has also been devastating for many economies.

The US Federal Reserve is due to announce its monetary policy on Wednesday and market participants have already started to discount a relatively less aggressive central bank. That SPDR S&P 500 ETF Trust SPY closed down 0.71% on Monday during the Invesco NASDAQ 100 ETF QQQM 1.15% lower closed.

Policy Response: Noting that each of these issues could be all-encompassing in normal times, Summers questioned how policymakers should respond to their combination. “At least the aim of politics should be clear. What is…