IMF Advises Caution on Interest Rate Cuts in Face of US Inflation Concerns

On June 27, during a press conference, the head of the International Monetary Fund (IMF), Kristalina Georgieva, advised the US Federal Reserve (Fed) to exercise caution and postpone any interest rate cuts until the end of the year. Although the US is the only G20 economy experiencing growth post-pandemic, concerns have been raised about rising inflation due to this robust growth.

Georgieva emphasized that keeping the benchmark interest rate at its current level of around 5.25-5.5% is critical in mitigating inflation risks. The IMF predicts that the personal consumption expenditures (PCE) price index will reach 2.5% by year’s end, but the Fed’s target of 2% inflation may not be achieved until 2026.

The IMF remains optimistic about the US economy’s ability to manage inflation, citing signs of a tightening labor market and weakening consumer demand. Georgieva highlighted the need for clear evidence that inflation is approaching the 2% target before considering any interest rate cuts.

As uncertainties persist, Georgieva emphasized the importance of caution in navigating the economic landscape. Investors are closely monitoring economic data such as core PCE index to gauge potential Fed policy adjustments in the future. Despite forecasts of rate cuts by investors, the Fed anticipates only one policy adjustment in the near term.