On Friday, former Treasury Secretary Larry Summers shared his thoughts on the US economy and the country’s global image given the latest economic data and amid China’s increasing influence in the Middle East.

The Fed faces very difficult decisions: There are increasing signs of stagnation along with ongoing concerns about inflation, Summers called in a Bloomberg interview.

Citing the fact that defaults have risen, credit flow has slowed and retail sales are weak, Summers said, “I think you have some cause for concern about what’s happening with real-world activity on a forward-looking basis.”
While the former tax officer conceded that CPI inflation and producer price inflation have surprisingly slowed, He noted that the University of Michigan’s one-year inflation expectations, along with the Atlanta Fed’s wage growth tracker (which measures nominal wage growth for individuals and is a relatively solid indicator of what’s happening in the labor market), have jumped a bit over the last month.
“I don’t see inflation on a safe path to the 2 percent target unless the economy turns around a bit,” Summers said, adding that the Federal Reserve has several very difficult decisions to make.

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Impact of tighter credit standards: The Fed has already started tightening credit standards, Summers said. Before the banking crisis, the economist said he was studying the possibility of the fed funds rate rising to as much as 6 percent.

“What’s very hard to know is whether this credit action that the Fed is bolstering, is that a three puff strengthening, is it just a one puff strengthening, and that’s the verdict that the Fed is making on one must be ongoing,” Summers said.

He expressed surprise at the markets’ expectations of a large series of rate cuts over the next two years. “It doesn’t seem very likely to me that we…