According to the Financial APP, Lawrence Summers, the former US Secretary of the Treasury and known as the 'US inflation whistle-blower', recently stated that the market's judgment on the Fed's interest rate cut path is too aggressive, and potential threats of inflation may prevent the Fed from lowering interest rates as expected in the coming years. Summers said in a media interview on Thursday: 'In fact, looking at the dot plot, it seems that policymakers at the Federal Reserve believe that loose monetary policy may go too far, but this poses a significant risk to the potential growth trend of inflation.'

In the latest forecast chart of the Federal Reserve policy makers for the US benchmark interest rate (the 'dot plot'), the median expectation for the benchmark interest rate at the end of next year is 3.4%, reflecting the possibility that, based on the 50 basis point rate cut announced by the Fed on Wednesday, it could further cut interest rates by up to 1.5 percentage points. Market expectations for rate cuts are even more aggressive, with the interest rate futures market expecting the Fed to cut rates by 1.75 to 2 percentage points by the end of next year.

The former US Secretary of the Treasury, also a Harvard University professor, Summers, said: 'If inflation pressure reappears, interest rates will not fall significantly as predicted by Fed officials in their so-called dot plot.' He also warned investors that the financial markets significantly overestimated the loose monetary policy the Fed is about to adopt.

Summers has long been acclaimed by Wall Street economists as the 'US inflation whistle-blower'. As early as 2021, Summers publicly warned of the possibility of a sharp increase in US inflation, and insisted last year, when expectations of a rate cut were high, that the market overpriced the possibility of multiple Fed rate cuts in 2024. He also believed last year that inflation could rise again and the Fed seriously underestimated the long-term neutral interest rate level.

Higher long-term interest rates

I suspect that long-term interest rates will rise to some extent in the future - possibly a significant rise in 10-year or 30-year long-term interest rates. He stated in an interview.

As of Thursday's closing, the yield on 10-year US Treasury bonds, known as the 'anchor of global asset pricing', was about 3.71%, far lower than last year's historical high of over 5%, reflecting the bond market's aggressive pricing of the Federal Reserve's interest rate path, well ahead of the Fed's interest rate curve.

Former US Treasury Secretary Summers pointed out that over time, a higher yield curve will push up US mortgage rates. The recent decline in the cost of long-term borrowing has stimulated demand expansion for US housing loans, providing hope for a rebound in demand in the US real estate market.

Summers said in an interview: 'Compared to the potential average level we might expect over the next five years, the mortgage rates people are seeing now may be relatively low.'

According to statistics from the Mortgage Bankers Association (MBA), the 30-year fixed mortgage rate in the US last week was approximately 6.15%, significantly lower than the 6.78% at the beginning of this year. Over the past five years before the outbreak of the COVID-19 pandemic, the average level of this long-term interest rate hovered around 4.2%.

Mortgage rates have fallen from their highs of the past few decades.

Summers reiterated his personal opinion in the interview that the Federal Reserve may underestimate the neutral interest rate - the long-term interest rate level that Fed policymakers believe is consistent with their target inflation rate of 2%.

Fed officials did raise their long-term neutral rate expectations in the latest economic data forecast released on Wednesday, Eastern Time. The median rose to 2.875%, as shown in the latest Fed dot plot to indicate a stable benchmark interest rate expectation starting in 2026. Fed Chairman Jerome Powell stated at the press conference that the long-term neutral rate "may be much higher than the years before the COVID-19 pandemic", when global government bond yields were negative in the tens of trillions of dollars.

Powell stated at the press conference after the interest rate decision: "We are still unclear about where the neutral rate is. We can only understand it through its operation and economic data." Here, it refers to the fact that if the Fed's benchmark interest rate is set below the long-term neutral rate, the inflation rate will rise.

Summers stated that higher U.S. fiscal borrowing and significant investments in wind power and ai indicate a long-term neutral rate of at least 4% - a neutral rate expectation far higher than implied by the Fed dot plot.

Opinion on the acquisition of United States Steel by Nippon Steel

The former Treasury Secretary also expressed appreciation for the Biden administration's postponement of the review of the proposed acquisition of U.S. steel company, United States Steel, by the Japanese steel industry giant, Nippon Steel. Media reports this week indicated that the Japanese company has been allowed to resubmit their acquisition plan.

Summers stated: "We have avoided catastrophic actions that Pennsylvania steelworkers, as well as large steel users including auto manufacturers and the domestic defense industry, might have taken." He emphasized: "I hope that in a more stable environment of less intense emotions after the U.S. presidential election, rational minds will prevail, and the market will operate normally."