On June 27, the head of the International Monetary Fund (IMF), Kristalina Georgieva, advised caution for the US Federal Reserve (Fed) when it comes to interest rate cuts. While the US is currently the only G20 economy experiencing growth post-pandemic, there are concerns about rising inflation due to this robust growth.
Georgieva emphasized that maintaining the benchmark interest rate at its current level of around 5.25-5.5% is crucial in mitigating inflation risks. The IMF predicts that the personal consumption expenditures (PCE) price index will reach 2.5% by the end of the year, but the Fed’s target of 2% inflation may not be achieved until 2026.
Despite uncertainties and forecasts of rate cuts by investors, Georgieva highlighted the importance of a cautious approach for the Fed in navigating the economic landscape. She emphasized that clear evidence must be presented before considering any interest rate cuts to ensure that inflation is approaching the desired target of 2%. Investors are closely monitoring economic data, such as the core PCE index, to gauge potential policy adjustments in future. The Fed anticipates only one policy adjustment in the near term.
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