IMF Urges Fed to Maintain Tightening Policy Amid Inflation Concerns, Citing ‘Challenges’ Ahead

Celý článek

On Thursday, International Monetary Fund (IMF) spokesperson Julie Kozack urged the U.S. Federal Reserve and several other central banks to maintain a restrictive monetary policy known as tightening. Kozack stated that the U.S. central bank may need to keep the federal funds rate higher “for longer” than anticipated.

IMF Calls for Extended High Interest Rates to Tackle Lingering Inflation Threat

The IMF is concerned about persistent inflation, and during a press briefing, IMF spokesperson Julie Kozack emphasized the need for the Fed and several central banks worldwide to maintain their current course of monetary tightening policy. The Fed is scheduled to meet on June 14, 2023, in less than a week.

However, market observers and financial experts anticipate that the Fed will pause its rate hikes during this meeting. According to CME’s Fedwatch tool, there is a greater than 74% probability that the rate will remain unchanged. Inflation in the United States has moderated to some extent, acknowledged Kozack, but if it continues to stay elevated, the Fed may need to maintain high rates.

“If inflation does prove to be more persistent than expected, then the Fed may need to push interest rates higher for longer,” Kozack said. Presently, the benchmark bank rate is at its highest point in 16 years, and lending rates throughout the country have surged. For example, the average mortgage on June 8, 2023, carried a 30-year term interest rate of 7.591%.

“We also see that inflation momentum has slowed, but that inflation does remain a pressing concern,” Kozack told reporters at the IMF press briefing. “Our advice remains unchanged, which is that the Fed would need to stay the course on monetary policy to ensure a durable reduction in inflation and to ensure that inflation expectations—remain well-anchored.”

Kozack stated that the IMF plans to release its World Economic Outlook at the end of July. In early 2023, the IMF had cautioned that the year would present challenges for the global economy, highlighting anticipated slowdowns in the United States, European Union, and China. Kozack emphasized on Thursday that the organization continues to foresee forthcoming challenges.

“We see challenges over the medium term for the global economy, and that requires policy measures to be taken now,” Kozack insisted. “We believe that central banks should stay the course on monetary tightening to decisively reduce inflation.”

What are your thoughts on the IMF’s call for central banks to maintain a tight monetary policy amid persistent inflation concerns? Share your thoughts and opinions about this subject in the comments section below.