(Bloomberg) -- Former Treasury Secretary Lawrence Summers highlighted the risk of a sudden downturn in the economy after a surge in jobs growth that dwarfed expectations.

“It’s as difficult an economy to read as I can remember,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin. A key question after the jump in US payrolls is whether this is all “going to be income that’s going to be spent, that’s going to lift the economy up a bunch?” or do companies at some point conclude they have too many workers and too much inventory “and we’re going to see a fairly sudden stop.”

Summers spoke after the January US employment report showed a 517,000 increase in payrolls, well above the highest estimate in the Bloomberg survey of economists. The unemployment rate dipped to 3.4%, the lowest level since 1969.

Read more: US Payrolls Surprise With Surge as Jobless Rate Hits 53-Year Low

“I still do think there is the risk” of a kind of Wile E. Coyote moment, Summers said in reference to the cartoon character that falls off a cliff. He said it’s possible the pattern of the recent slew of layoffs among big technology companies will be replicated more broadly across the economy. “But that’s certainly anything but a confident prediction.”

Another key question is whether the recent slowdown in wage inflation continues, said Summers, a Harvard University professor and paid contributor to Bloomberg Television. Economic models didn’t predict the extent of the jump in earnings seen in the latter part of 2022, he said, while the current pace of gains is more in line with what they would have priced in. 

“The question now is whether that inflation is going to continue to decline rapidly,” he said. If it doesn’t, that will make a so-called soft landing in the economy more challenging, he said.

While last week Summers highlighted that a loosening in financial conditions — thanks in large part to rallies in stocks and bonds — ought to concern the Fed, he stopped short of criticizing Chair Jerome Powell for avoiding any such expression of worry in his press conference Wednesday.

“I think the Fed’s doing a good job of portraying substantial uncertainty in the economy,” Summers said. Policymakers are “recognizing that it’s going to be very hard, and they’re going to have to try to interpret the data month by month, and that there are a lot of surprises.”

The danger is still that the reduction in inflation “will be transitory — I think that risk is greater than I think the Fed thinks it is,” he said.

At the same time, the former Treasury chief said one dynamic that’s “not gotten the discussion it deserves” is how the decline in the inflation rate has meant that interest rates, when adjusted for inflation, are now positive.

“That’s a kind of tightening in financial conditions” that isn’t captured by standard indexes, Summers said.

Powell also highlighted that dynamic in his press conference Wednesday, when the Fed raised its benchmark rate by another 25 basis points. Real rates “positive across the yield curve,” the Fed chair noted.

Summers concluded, “we have to maintain a lot of agnosticism about where headed.”

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