GO
Loading...

Economy could accelerate substantially: Summers

There's a prospect that the economy could accelerate "quite substantially" over the next couple of quarters, former Treasury Secretary Larry Summers told CNBC's "Closing Bell."

"That would be an important and obviously positive development," he said Monday. "[There's] no assurance that will be the case, but I think that could be a surprise."

However, while he is concerned that rapid economic growth could lead to a market bubble, he doesn't think the U.S. is in one yet despite the narrower credit spreads and certain asset prices that are inflated.

Read MoreThis is what is expected to cement US rebound

Lawrence Summers
Getty Images
Lawrence Summers

The challenge, he said, is that it isn't clear what the long-term normal level of interest rates is going to be.

"My suspicion is that it's going to need to be lower going forward than it has been in the past. And obviously when you have lower rates, that creates more capacity for people to overstretch themselves, for people to reach for yield," said Summers, also the former director of the White House National Economic Council, former Harvard president and current Harvard professor.

Read MoreInflation depends largely on this factor: Fed

Because managing adequate growth and financial stability will be a difficult task in the road ahead, Summers believes it's important to find ways to accelerate the natural rate of growth through things such as immigration, tax reform and investments in infrastructure.

As for creating incentives for businesses, he thinks there needs to be more demand in the economy.

"People will innovate new products if they foresee larger markets. So I think issues on the demand side in many ways relate to the issues on the supply side. Indeed I'd go so far as to say lack of demand today creates lack of supply potential in the future," Summers said.

Read MoreMidwest business activity drops in June

—By CNBC's Michelle Fox

Contact US Economy

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More