IMF's Prescription for Inflation: Stronger Fiscal Policy Needed in the U.S.!
The International Monetary Fund (IMF) stated on Friday that the United States will likely need to maintain higher interest rates for a longer period to control inflation. The IMF's "Article IV" review of U.S. policies revealed that although the U.S. economy has demonstrated resilience in the face of tighter monetary and fiscal policies, inflation has been more persistent than expected.In its review, the IMF provided a full-year growth forecast of 1.7% for 2023, slightly higher than its April estimate of 1.6%. However, it projected lower output of 1.2% compared to the fourth quarter of the previous year.The IMF forecasted that the federal funds rate would peak at 5.4% this year, surpassing the nominal 5.25% Fed rate, and then gradually decrease to 4.9% by 2024."While core and headline PCE inflation are expected to continue falling during 2023, they will remain materially above the Fed's 2% target throughout 2023 and 2024," the IMF stated.IMF Managing Director Kristalina Georgieva emphasized the need for the U.S. government to reduce deficits, particularly by increasing tax revenues."The sooner this adjustment is implemented, the better. It is worth noting that the fiscal adjustment can be front-loaded, and by doing so, it would assist the Fed in its efforts to curb inflation," Georgieva said.Georgieva expressed hope that a last-minute resolution to the U.S. debt ceiling crisis would be reached in Washington, thus avoiding a catastrophic default that would cause further disruptions to the global economy."The U.S. Treasury market is the foundation of stability for the global financial system. If you disturb this foundation, the world economy—the ship we all travel on—will encounter choppy and uncharted waters," Georgieva warned, adding that this would occur at a time when many economies were contracting.She also urged U.S. lawmakers to find an alternative method for managing debt that eliminates the need for debt ceiling brinkmanship through the annual appropriations process.
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