The Fed has 'itchy fingers' and should not be in a rush to cut interest rates, Larry Summers says

• Former Treasury Secretary Larry Summers says the Fed seems too eager to cut rates.
• He said the Fed's neutral rate target is too low given how strong the economy is.

Former Treasury Secretary Chairman Larry Summers thinks the Federal Reserve is getting ahead of itself in its outlook for rate cuts.

"My sense is still that the Fed has itchy fingers to start cutting rates and I don't fully get it," Summers said during an interview with Bloomberg on Thursday, citing key economic indicators that seem at odds with the Fed's appearance of being "in such a hurry" to loosen policy.

"We've got unemployment if anything below what they think is full capacity. We've got inflation, clearly even in their forecast for the next two years above target. We've got GDP growth rising if anything faster than potential. We have financial conditions, the holistic measure of monetary policy at a very loose level."

Summers' take followed the Fed's latest policy meeting on Wednesday, which ended with officials keeping the central bank's benchmark rate unchanged, but signaled in its dot plot of rate expectations that three rate cuts are on tap for 2024.

The Central Bank's newly released 2.6% neutral rate — the rate of interest that neither stimulates growth nor causes the economy to contract — is too low and "bizarre," Summers said.

Higher deficits and loads of debt that pressure the credit market, surging investments in the private sector, and the recent soaring demand for artificial intelligence products, according to Summers, should not give policymakers a sense that current policy is restrictive.

"[W]ith all those impulses to demand, I cannot understand why someone would form the view that the neutral rate was essentially the same as they thought it was four years ago," he said.