Former Treasury Secretary Larry Summers argues the Fed needs to continue to increase interest rates to orchestrate a “meaningful recession” and unemployment of at least 6% in order to tame inflation.

The economist, who served under the Clinton and Obama administrations, made the point in a Financial Times interview in which he refuted New York Times opinion columnist and Nobel Prize winner Paul Krugman’s belief that steep housing costs have yet to put further brakes on the economy.

Summers says there are numerous economic “cross currents” at play, most notably global inflation and monetary policy tightening, a growing wage-price spiral, an energy crisis in Europe, the Ukraine war and unfavorable trade with China.

“I would be very surprised if we were to simultaneously—as the Fed believes, or the Fed forecasts—bring inflation down to something approaching the 2% range and, at the same time, see unemployment rise to no higher than 4.4%,” Summers said. “It continues to be my view that we are unlikely to achieve inflation stability without a recession of a magnitude that would take unemployment towards the 6% range.”

Summers says Krugman’s belief that “team transitory” Fed should take a more dovish course—is “tendentious and selective.”

For his part, in “Wonking Out: What’s Really Happening to Inflation,” Krugman makes the case that extremely high housing costs, which began rising during the COVID lockdowns, have yet to take their full stranglehold on the U.S. economy—which would mean that there is “still a lot of downdraft in the pipeline” and bolsters the argument against continued steep interest rate hikes.

Krugman, a professor at the City University of New York Graduate Center, writes, “At this point, there’s good reason to believe that measures like core and median inflation are looking at the economy through a cracked rearview mirror and provide little useful policy guidance.”

Housing comprises 32% of the Consumer Price Index, CPI, and 40% of core inflation, Krugman continues. “CPI looks at the average amount renters pay,” he says. “But most renters have leases, which means that their rent largely reflects the rate of the rental market some time in the past. Indeed, an important new report from the Bureau of Labor Statistics estimates that the official rent measure lags behind market rents by roughly a year.”

Krugman believes housing costs have yet to crest, all the while the CPI measurement is lagging behind, buttressing his argument against a Federal Reserve target rate of 4.9% by year end.

“So, what’s the moral of the story? Basically, simple rules for assessing where inflation is right now are broken.” Krugman maintains. “We’re in judgement territory—and that leaves lots of room for argument.”

Summers counters that a Fed pivot—which traders and investors are praying for—would be premature:

“Just as the patient who doesn’t complete his regimen of medicines does herself no favor, or the oncologist who prescribes too few courses of chemotherapy does their patient no favors,” counters the former director of the National Economic Council under President Barack Obama, “I believe the prospects for robust American and global growth will be greater if we do not allow inflation expectations to become fully entrenched.”

Ultimately, Summers says, the Fed “will have to raise rates a bit more than their ‘dot plot’ forecasts suggest.”

And that, he concludes, will indeed mean more pain for U.S. households, as Federal Reserve Chairman Jerome Powell has conceded—just a whole lot more pain.