US inflation still hasn’t “turned the corner” despite a recent cooling, a senior IMF official has said. That means the Federal Reserve should stick to its interest rate hikes, Gita Gopinath told the FT. His comments come after Fed minutes released on Wednesday signaled that rates could stay higher for longer. Something is loading.
Thank you for your registration!
Access your favorite topics in a personalized feed on the go. download app
Inflation is still a problem for the US economy despite recent signs of a slowdown, which means the Federal Reserve still has work to do, according to a senior International Monetary Fund official.
Speaking to the Financial Times, Gita Gopinath, deputy managing director of the fund, urged the Fed to continue raising interest rates this year until there is a “very sharp and sustained decline in the inflation” of wages as opposed to food or energy costs.
“If you look at the labor market indicators, and if you look at the very sticky components of inflation like services inflation, I think it’s clear that we haven’t turned the corner yet. inflation,” Gopinath said in the interview published Thursday.
The IMF’s second-in-command said the fund’s advice was for the Fed to “stay the course” on its tight monetary policy.
His comments follow Wednesday’s release of minutes from the Fed’s December meeting, which suggested interest rates could stay high for longer. At the meeting, policymakers “stressed that much more evidence of progress would be needed to be confident that inflation was on a sustained downward path.”
The most recent data showed that the inflation rate in the United States cooled again in November to 7.1%, its slowest pace in a year and below economists’ expectations of 7.3%. In June, it hit a 40-year high of 9.1%.
The Fed raised interest rates at the fastest pace in its history to bring inflation back to its 2% target. It raised the benchmark rate by 75 basis points in four consecutive meetings last year and ended 2022 with a 50 basis point hike.
The pace of the Fed’s rate hikes has raised concerns that its actions could tip the US economy into recession. Gopinath told the FT that the US has a very narrow path to avoid an economic downturn.
“It’s another tough year for monetary policy, but it’s a different kind of challenge,” she said.
“Last year it was all about tightening monetary policy quickly and how far to go. Now for many countries the question is how long to hold on.”