It Federal Reserve it is necessary to wait until the end of the year to lower the interest rates “at least”. This was announced by the Director General of the International Monetary Fund, Kristalina Georgieva, who believes that the United States is the only economy of the G20 that has recorded growth above the pre-pandemic level, and that the “strong” growth is indicative of rising inflation trends. .
“We are aware of important upside risks,” IMF Executive Director Kristalina Georgieva said at a press conference yesterday, Thursday, June 27. “In light of these risks, we agree that the Fed should keep monetary policy rates at current levels at least through the end of 2024.”
The Fed’s current federal funds rate has remained in a range of 5.25% to 5.50% through July 2023.
US inflation to 2% no earlier than mid-2025
The IMF, often called the world’s “lender of last resort,” forecasts that the core personal consumption expenditure price index, the Fed’s preferred measure of inflation, will be around 2 at the end of 2024. 0.5% and will arrive. Fed’s 2% target in mid-2025.
Georgieva then recalled that US economic strength during the Fed’s rate-hiking cycle has supported labor supply and productivity growth, while stressing the need for “clear evidence” that inflation is falling to the 2% target before the Fed cuts rates.
However, the IMF’s “more optimistic” assessment of the inflation trajectory is based on indications of a cooling US labor market and weakening consumer demand.
Inflation in focus, after upward revision of GDP
While waiting monthly data on PCE inflation, which will be published today. This is the way the Federal Reserve prefers to measure price trends. according to experts, a slowdown is expected in May from the 2.8% annual interest rate registered in April to 2.6%.
Meanwhile yesterday US Gross Domestic Product first quarter was revised up from 1.3% to 1.4%, based on the final data reading, in line with expectations. Either way, this is the slowest quarterly growth since spring 2022, a clear slowdown from the 3.4 percent increase in the last quarter of 2023.
Consumer spending, the main component of US GDP, rose just 1.5%, down from the initial estimate of 2%, a sign that higher interest rates could have a negative impact on the economy. “Core” PCE inflation data for the quarter was revised up from 3.6% to 3.7%, versus expectations for a 3.6% confirmation.
Fed. analysts’ expectations
Two weeks ago, the American central bank, as widely expected by the market, left interest rates unchanged at 5.25-5.50%, which indicates that there will be another reduction this year. The markets were hopeful in a more accommodative central bank, but FOMC members ruled out two rate cuts by the end of the year after a two-day meeting, down from three in March.
