Larry Summers says the Fed will need to raise interest rates by more than the market expects as its 'got a long way to go' to bring down inflation

As inflation continues to be high, investors should expect the Federal Reserve to increase interest rates more than they are currently pricing in.

"I think the Fed policy makers are going to need more increases in interest rates than the market is currently telling them," he said. The November jobs report showed the economy added 263,000 jobs, more than the 200,000 economists had expected.

The chairman of the Federal Reserve said this week that the central bank has seen signs of moderation in labor demand.

"My sense is that inflation is going to be a little more sustained than what people are looking for." Wage growth was strong in the November jobs report, with earnings up 0.6% on a monthly basis. The economists had a projection of 4.6% for the year over year rate.

The gap between vacancies and jobs is still unprecedented. We have a long way to go to get inflation down where the Fed wants it to be. The Fed has a goal.

The terminal rate for the fed funds rate is expected to be around 5%. I always try to look for possible errors and four percent seems almost impossible and six is certainly a scenario we can write. Five is not a good guess for where it will be.

After the central bank increased the fed funds rate by 75 basis points last month, the fed funds rate was at a range of 3%- 4%. The Federal Open Market Committee is expected to reduce the size of its next rate hike at its December meeting. The benchmark rate would go up to 4%.

The Fed will have a hard time steering the economy into a soft landing.

There are a lot of mechanisms kicking in. When consumers run out of savings, Wile E. Coyote falls from cliffs, he said.

Some people put their houses on the market and then others rush to put them on the market as house prices fall. When credit dries up, people can't pay back their old borrowing.

There is a consumer price inflation report for November. A month-over-month increase in core inflation is projected by economists. The year-over-year figure stood at 7.7% in October, down from a four-decade high in September.