The International Monetary Fund (IMF) recently issued a warning regarding the increased upside risks to inflation, causing doubts about the possibility of multiple interest rate cuts by the Federal Reserve this year. According to the IMF’s latest World Economic Outlook update, there has been a slowdown in global disinflation momentum, indicating potential obstacles ahead. The United States, in particular, has seen a rise in inflation earlier in 2024, placing it behind other major economies in terms of quantitative easing efforts.
Traders have been anticipating a rate cut by the Federal Reserve in September, with the CME Group’s FedWatch tool pricing in a 100% chance of lower rates at the upcoming September 18 meeting. The market also predicts the possibility of another rate decrease in November. Despite these expectations, IMF chief economist Pierre-Olivier Gourinchas emphasized during an interview on CNBC that a single rate cut from the Fed would be the most appropriate course of action this year. He pointed out that stubborn services and wage inflation could complicate efforts to reduce inflation rates.
Gourinchas highlighted the concerns surrounding robust wages and service inflation, stating that while they may not be causes for immediate worry, they pose significant challenges for the U.S. economy. His comments came after the U.S. Labor Department reported that the consumer price index had grown at the slowest year-over-year pace since April 2021. The IMF also adjusted its growth forecast for the U.S. economy, lowering it by 0.1 percentage point to 2.6% for 2024. This adjustment was made due to cooling consumption trends and slower-than-expected growth at the beginning of the year.
Overall, the IMF’s warning about increasing inflation risks serves as a reminder of the complexities involved in managing economic growth and stability. As uncertainties and challenges continue to impact global economies, policymakers will need to navigate carefully to ensure sustainable and balanced growth in the face of changing inflation dynamics. The decisions made by central banks, including the Federal Reserve, will play a crucial role in shaping the economic landscape in the coming months.