Larry Summers: Fed rate hikes are not as functional as they used to be

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The US economy remains resilient despite the Fed's interest rate hikes. Former US Treasury Secretary Larry Summers attributes this to the fact that the Fed's interest rate hike policy is gradually losing its functionality.

Larry Summers warns that the current US economy, which resembles an 'energizer bunny', increases the risk of a hard landing after the latest employment reports.

Hard landing risk is increasing

As Fortune's Christopher Anstey reports, former Treasury Secretary Lawrence Summers says last month's rise in US employment is 'great news' for now, but he also argues that it proves that the Fed's rate hikes are not working as well as they used to, raising the danger of a hard landing for the economy.

"We have a kind of 'energizer bunny' economy but that, together with accelerating labor market growth, makes the risk of a hard landing perhaps 'look a little bit bigger,'" Summers said. Summers' comments come after data released on Friday showed US payrolls rose almost twice as fast as economists had expected for September. The report points to an increase of 336,000 new jobs on top of upward revisions to hiring in the previous two months. But the report also shows a slowdown in wage growth.

While the numbers are good...

"You have to recognize that these are good numbers, but I wouldn't say they guarantee a soft landing," said Summers, who is also a Harvard University professor.

The rebound in hiring comes a year and a half after the Fed launched its most aggressive monetary tightening campaign in decades with rate hikes of more than 5 percentage points. Summers emphasizes that the performance of the US economy points to some fundamental changes in the effectiveness of Fed policy.