IMF: Too Early for US to Abandon Restrictive Monetary Policy

Stressing that there is a very narrow path for the United States to avoid a recession in the coming months, the International Monetary Fund (IMF) has advised the United States to stick with last year’s restrictive monetary policy since the inflation in the US has not subsided sufficiently enough.

Gita Gopinath, the deputy head of the International Monetary Fund (IMF), pointed out that it’s important for the US Federal Reserve to keep its current course and urged the US central bank to press ahead with rate rises in 2023 since it is too early to declare victory in the fight on rising prices.

According to Gopinath, the Federal Reserve should continue with its efforts to lower prices until there’s a definite, durable decline in inflation across the sectors that are related neither to food nor to energy, pointing to indicators in the labor market and the sticky components of inflation – like services inflation- as signs that inflations are still here.

The US Labor Department’s data showed that compared with the 7.7% rise in October, prices in the country rose by 7.1% year-on-year in November, which is leading analysts to suggest the price surge may have passed its peak based on the US inflation figures that have started to subside in the past couple of months.

Gopinath believes that in order to avoid further price increases, the Federal Reserve, which hiked the key interest rate by 50 basis points – up to 4.25-4.5% – in its most recent attempt to rein in inflation on December 14, may need to raise the rate to about 5% and keep it there throughout 2023.

She noted that 2023 will be another challenging year for monetary policy, emphasizing that, unlike last year, when it was about quickly tightening monetary policy and how far to go, this year the question for lots of countries is how long to stay on hold.

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