IMF Says Fed Should Speed Up Rate Hikes, Auto News, ET Auto
With the recent wave of price hikes expected to remain a concern for some time, the US Federal Reserve is likely to raise interest rates sooner, the IMF said on Friday.
This was an unusually direct policy recommendation from the Washington-based crisis lender which comes as growing demand coupled with supply bottlenecks and shortages of key materials like semiconductors pushed US consumer inflation at its highest level in three decades.
The Fed has already signaled that it will remove stimulus more quickly, opening the door to a lending rate hike before mid-2022. Many economists now expect two or three interest rate hikes next year.
“Inflation is likely to be higher for longer than previously thought”, especially in economies that have recovered from the pandemic faster like the United States, IMF chief economist said Gita Gopinath and Tobias Adrian, Director of the IMF’s Monetary and Capital Markets Department. a blog.
As the US economy recovers strongly from the pandemic and faces strained labor markets and large price increases, “it would be appropriate for the Federal Reserve to accelerate the reduction in asset purchases and advance the path of key rate increases “.
Last month, the Fed began slowing down its monthly bond buying program put in place to shore up the financial system at the start of the pandemic, when it lowered the benchmark lending rate to zero.
Fed Chairman Jerome Powell said earlier this week he would advocate ending bond buying sooner, which would mean the bank would be able to hike rates in the first half of the year. ‘next year.
IMF officials have said central bankers should continue to wire their movements in advance to avoid surprising markets and triggering a wave of volatility.
It is “essential that the major central banks communicate carefully their political actions so as not to trigger a market panic which would have deleterious effects not only at home but also abroad”, they declared.
Given the “significantly higher uncertainty associated with Omicron”, the latest variant of Covid-19, policymakers will need to monitor the data closely as another outbreak could exacerbate supply issues, they said.
However, they continue to believe that “the mismatch between supply and demand” will ease over time, “reducing some price pressures in countries.”
“Shipping delays, delivery delays and semiconductor shortages are likely to improve in the second half of 2022” and demand will ease as the effects of government stimulus wear off, they predict. .