(Bloomberg) -- Former Treasury Secretary Lawrence Summers said that the Federal Reserve is well off on its estimate of a neutral setting for interest rates, and that there’s an increasing chance that policymakers don’t end up lowering their benchmark this year.

“There’s something very fundamental that has happened, that I’m not sure that the Fed has fully realized,” Summers said on Bloomberg Television’s Wall Street Week with David Westin. “The neutral interest rate is way above the 2.5% that the Fed likes to talk about.”

The neutral rate is theoretically the setting for the Fed’s benchmark that would neither stoke the economy nor hold it back. If policymakers misjudge what’s neutral, they could be mistaken in how much restraint they think they’re imposing. Fed officials estimate their benchmark rate at 2.5% over the longer run. That’s 3 percentage points below the top of the current policy target range.

“When the Fed compares 5% with the 2.5% neutral rate it sees, and people say that monetary policy is substantially restrictive, that’s wrong,” said Summers, a Harvard University professor and paid contributor to Bloomberg TV. “The neutral rate is much higher than that,” he said. “Neutral rates are closer to having a 4-handle than they are to having 2-handle.”

Fed policymakers will be updating their estimate for the long-run benchmark rate at their gathering later this month. Their median projection hasn’t been 4% or higher in about a decade.

Fed Chair Jerome Powell on Thursday said that “we’re far from neutral now” with the current rate stance. “Interest rates right now are well into restrictive territory. They’re well above neutral,” he said at the Senate Banking Committee.

Summers urged Powell and his colleagues to be particularly careful about shifting toward rate cuts. Powell on Thursday said that “we’re not far” from getting the confidence about the inflation trajectory needed to begin dialing back policy restraint.

Read more: Powell Says Fed ‘Not Far’ From Confidence Needed to Cut Rates

“The Fed needs to be very careful in its judgment about what would be an epochal shift from the regime we’ve had for the last several years,” Summers said. He also cautioned that financial markets may be pricing in too much in terms of rate cuts for 2024. “It’d be a real mistake for people to regard that as any kind of certainty,” he said of Fed easing this year.

Summers also said that Friday’s jobs report, which showed continued payroll gains alongside an increase in the unemployment rate to a two-year high, continued to reflect a strong economy. Job growth is still “considerably more rapid than underlying population growth,” he said. 

Read more: US Jobless Rate Hits Two-Year High Even as Hiring Stays Strong

The former Treasury chief noted that last month he had indicated about a 15% chance that the Fed doesn’t lower rates this year. On Friday he said, “If anything that 15% may have drifted slightly upwards.”

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