With rampant inflation, supply chain bottlenecks, rising Omicron infections and partisan politics creating legislative grid lock, the United States may be facing recession this year.

So says former Treasury Secretary Larry Summers.

Both US and European stocks dropped significantly yesterday on the latest revelations of the Federal Reserve Minutes.

Summers has cautioned that not enough attention has been paid to galloping inflation and that the Federal Reserve should have moved sooner to increase interest rates to staunch runaway inflation.

“My fear is that we are already reaching a point where it will be challenging to reduce inflation without giving rise to recession.

“If I thought we could substantially run the economy in a real-hot way that would be a wonderful thing but the consequence and this is the excruciating lesson we learned in the 1970s of an overheating economy is not merely elevated inflation but constantly rising inflation,” said Summers, speaking with Bloomberg.

A former adviser to both President Bill Clinton and President Barack Obama, Summers believes there is a 40 per cent chance of a recession over the next two years and that there is an imminent need to tighten monetary policy.

Making things worse is a labour shortage with Americans getting comfortable with government payouts and reluctant to return to work.

Last month, inflation hit a 40-year high in America. What is occurring now is rising food, housing and gas prices.

Speaking with author Walter Isaacson on PBS, Summers, a former President Emeritus of Harvard University, added: “Interest rates are two per cent lower than they were at the beginning of 2021 even when unemployment was falling fast and inflation had risen rapidly. I think over time, they will have to do considerably more. It’s a delicate process once you have excessive inflation. Historical experience is, it is difficult to contain inflation while at the same time engineering a soft landing for the economy.”

Summers is of the view that the inflation predicament is due to taking an economy with a shortfall in demand and then placing 15 per cent of GDP into it, therefore creating high demand with limited supply, thus pushing the level of prices up, causing inflation.