The IMF recommends that the Fed “stay the course” in its rate hike policy


The United States Federal Reserve (Fed) continues to operate in a scenario in which the inflation continues to worry the global economy. In this sense, the deputy director of the International Monetary Fund (IMF), Gita Gopinathwanted to remind the Fed of the importance of its role in putting a stop to the rise in prices, since American banking has the responsibility to “stay the course” to continue raising interest rates.

“If you look at the indicators in the labor market and if you look at the components of inflation, like service inflation, I think it’s clear that we have not yet turned the corner on inflation“, points out the economist in an interview with ‘Financial Times’ -collected by Europa Press- in which she has been quite conservative regarding financial expectations for 2023.

In this sense, Gopinath considers it “important” that the Fed “maintain a restrictive monetary policy” until there is a “very definite and lasting decrease in inflation” that was evident in wages and sectors not related to food or energy. For the ‘number 2’ of the IMF the main concern in relation to the behavior of inflation comes from the resilience displayed by the US labor market.

The deputy director wanted to remind that Unemployment rate still hovering at record lows achieved during the crisis, in addition, the shortage of workers has helped to promote a wage increase that hinders the objectives to be achieved by the Fed to reduce inflation significantly to 2%.

The Fed alone

On the other hand, Gopinath said that he hopes that China’s economy suffers significantly in the short term as a consequence of Covid-19 and warned that the slowdown in the Asian giant would have a negative impact on world growth. In this way, the main problem at the international level is covered within a country that is reeling again due to an uncontrollable health crisis.

As to EuropeGopinath hopes that monetary tightening extends longer than the Fed’s. “We’re looking good to 2024 before we start to see inflation approaching the ECB’s target,” she says, adding that fiscal support put in place by European governments to address the rising cost of living would lengthen the process.

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