Persistent inflation and interest rate increases by the Federal Reserve increase the risk of the United States facing a recession, The managing director of the IMF, Kristalina Georgieva, gave her opinion this Friday.
In his annual review of the US economy – known as Article IV – The IMF cut its growth forecast for the world’s largest economy for 2022 to 2.9% from 3.7% it forecast in April, with a further slowdown to 1.7% in 2023.
The United States recovered from the slump caused by the pandemic, but with the “collateral effects” of rising pricessaid the head of the Fund.
Though The IMF is confident that the Fed’s interest rate increases will lower inflationbelieves that the margin to avoid a recession in the country is narrowing.
The Fed decided the biggest rate increase in almost 30 years last week (0.75 percentage points), as part of its effort to control the rise in prices.
Inflation is at a 40-year high in the United Statesat a level of 8.6% in 12 months to May, according to the CPI index of consumer prices, and erodes the purchasing power of Americans, who see gasoline and food rise sharply.
Georgieva argued in a statement that the “uncertainty” about the current situation.
“The economy continues to recover from the pandemic” but “major shocks” are affecting it, such as the Russian invasion of Ukraine or the lockdowns in China to combat covid, held.
Georgieva met with Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell, and the two officials made clear their “commitment” to control inflation as a “critical element to improve household income and ensure strong and sustained growth.”
For Georgieva, bringing the Fed’s benchmark interest rate quickly to 3.5-4.0% “is the correct policy.”
But the IMF asked the US central bank to better communicate its plans for rate developments.
“The Monetary Committee (FOMC) must communicate much earlier the expected evolution of its monetary policy to ensure that the exit from (the situation of) lax policy (ndlr: ultra-low rates) be done in an orderly, methodical and transparent manner”, advised the agency.
Georgieva also urged Washington to eliminate the punitive tariffs imposed on trade by President Donald Trump during his administration (2017-2021), something that President Joe Biden is considering.
“At a time when inflation is high and supply chains are tight … we can clearly see the benefits of removing the tariffs that have been in place for the last five years.”Georgieva pointed out.
(With information from AFP)
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