The International Monetary Fund (IMF) has tempered expectations for rapid interest rate cuts, warning of increased inflation risks that could extend the Federal Reserve’s tightening cycle.
While recent data have shown a cooling of headline inflation, the IMF points out that underlying pressures, particularly in services and wages, remain persistent. This suggests that the path to lower inflation may be more arduous than expected.
The IMF’s cautious stance contrasts with market sentiment, which has been leaning toward multiple rate cuts this year. However, the fund’s chief economist, Pierre-Olivier Gourinchas, has indicated that a more gradual approach to monetary easing may be needed.
The U.S. economy is forecast to grow at a slower pace of 2.6% in 2024, as cooling consumer spending and a slow start to the year weigh on growth.
The IMF assessment highlights the complexities central banks face in balancing inflation control with economic growth. With persistent inflationary pressures and a slowing economy, policymakers may need to adopt a more cautious and data-driven approach to monetary policy.