Persistent inflation and interest rate increases by the Federal Reserve increase the risk that the United States will face a recession, the managing director of the IMF, opined this Friday. Kristalina Georgiev.
In his annual review of the US economy ─known as Article IV─, the IMF cut its growth forecast for the world’s largest economy for 2022 to 2.9% from 3.7% it forecast in April, with a further slowdown to 1.7% in 2023.
The United States recovered from the fall caused by the pandemic, but with the “collateral effects” of rising prices, said the head of the Fund.
Although the IMF is confident that the interest rate increases of the fed will make it possible to lower inflation, he believes that the margin to avoid a recession in the country is narrowing.
The Fed decided the biggest rate increase in almost 30 years last week (0.75 percentage points), as part of its effort to control the rise in prices.
Inflation is at a 40-year high in USAat a level of 8.6% in 12 months to May, according to the CPI index of consumer prices, and erodes the purchasing power of Americans, who see gasoline and food rise sharply.
Georgieva said in a statement that the “uncertainty” surrounding the current situation must be acknowledged.
“The economy continues to recover from the pandemic” but “major shocks” are affecting it, such as the Russian invasion of Ukraine or lockdowns in China to combat covid, he said.
Georgieva met with Treasury Secretary Janet Yellen and Fed Chairman Jerome Powelland the two officials made clear their “commitment” to controlling inflation as a “critical element to improve household incomes and ensure strong and sustained growth.”
For Georgieva, bringing the Fed’s benchmark interest rate quickly to 3.5-4.0% “is the correct policy.”
But the IMF asked the US central bank to better communicate its plans for rate developments.
“The Monetary Committee (FOMC) It must communicate the expected evolution of its monetary policy much earlier to ensure that the exit from (the situation of) lax policy (ndlr: ultra-low rates) is done in an orderly, methodical and transparent manner,” the agency advised.
Georgieva also urged Washington to eliminate the punitive tariffs imposed on trade by President Donald Trump during his administration (2017-2021), something that President Joe Biden is considering.
“At a time when inflation is high and supply chains are tight … we can clearly see the benefits of removing the tariffs that have been in place for the last five years,” Georgieva said.