Summers: Inflation Measure Understates Impact of Rate Hikes on Consumer Finances

Former Treasury Secretary Larry Summers argues the consumer price index understates the pain of rising interest rates and higher borrowing costs. This may explain why public perception of the economy remains negative.

Interest rates and borrowing costs are not factored into the consumer price index, which tracks the prices of goods and services.

The "misery index" combining unemployment and inflation is at its lowest since the 1980s, yet 63% of Americans say the economy is getting worse.

Before 1983, the consumer price index accounted for interest rates by tracking mortgage payments. This captured the impact of rate hikes on people's finances.

Summers says lower interest rates could lift economic sentiment, pointing to a jump in optimism when rates dipped slightly in Dec/Jan.