IMF deputy chief: Fed should continue raising interest rates in 2023

Gita Gopinath, First Vice President of the International Monetary Fund (IMF), has warned that it is too early for the US Federal Reserve (Fed) to declare victory in its fight against rising prices.

In an interview with the Financial Times, Gopinath urged the Fed to continue raising rates through 2023, despite the recent moderation in headline inflation following one of the most aggressive tightening periods in US history.

The IMF executive said that it was important that the Fed maintain its restrictive monetary policy until there is a definitive and permanent drop in inflation. Despite fears from some economists that the Fed is already raising rates too aggressively, Gopinath said it’s hard to argue that officials are eyeing too sharp a tightening.

WORRIES ARE NOT OVER

“If you look at labor market indicators and key components of inflation, like service inflation, I think the inflation concerns are not over yet,” Gopinath said.

Gopinath’s comments came after energy prices fell from their recent highs, as the costs of goods like appliances and used cars began to fall. Furthermore, economists believe that inflation in the US, Europe and other economies may have peaked.

However, Gopinath’s concerns are the continued resilience of the US job market. The unemployment rate is still hovering around all-time lows. Also, according to Gopinath, severe worker shortages and wage increases make it difficult for the Federal Reserve to meet its 2 percent inflation target.

FED WARNING FROM IMF HEAD

Recently, the head of the IMF, Kristalina Georgieva, also stated in an interview that interest rates could remain high for a long time.

Georgieva explained that the US job market is still quite strong, that the US economy can survive the recession, but this may force the Fed to keep interest rates higher for a longer period. to reduce inflation.

When asked about the IMF’s expectations of a recession in 2023, Georgieva replied: “For much of the world economy, this will be a tougher year than the last.” “We expect a third of the world economy to go into recession,” said IMF Managing Director Georgieva. she used the phrase.

WHAT HAPPENS WHEN THE FED RAISES?

A possible rise in interest rates by the Fed will deeply affect world markets, especially emerging ones.

It is believed that the Fed’s interest rate hike may lead to an increase in the value of the dollar and a slowdown in growth. For this reason, the Fed’s decisions are followed with concern by the markets.