Fed Policy on Path to Reduce Inflation, IMF Chief Georgieva Says
Kristalina Georgieva, IMF Managing Director

Fed Policy on Path to Reduce Inflation, IMF Chief Georgieva Says

International Monetary Fund Managing Director Kristalina Georgieva said in a prepared statement that the Federal Reserve is on the right path to bringing down inflation, even if it results in an expected slowdown of the US economy.

Georgieva made her remarks at the release of the IMF’s annual Article IV consultation with the US.

“We believe the path for the policy rate that the Fed has signalled, to quickly get the federal funds rate to 3-1/2 to 4 per cent, is the correct policy to bring down inflation,” Georgieva said.

“We believe this policy path should create an up-front tightening of financial conditions which will quickly bring inflation back to target. We also support the Fed’s decision to reduce its balance sheet.”

The IMF is “confident the Fed will be effective in bringing inflation down, will remain data-dependent and, as conditions change, will telegraph clearly where policy is likely to go,” Georgieva added.

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A tightening of policy is expected to slow the US economy, and many are concerned about the risk of recession if the Fed acts too aggressively. The IMF is “conscious that there is a narrowing path to avoiding a recession,” Georgieva conceded, particularly given the uncertainties presented by the war in Ukraine and lockdowns in China.

The IMF is also “strongly supportive” of US President Joseph Biden’s “Build-Back-Better” plan and encouraged the administration to continue to push for support for that and for climate change initiatives on Capitol Hill.

Federal Reserve has maintained a hawkish mood over interest rates hike. The policy authority’s recent 75 basis points interest rate hike was the highest since the tapering mantra started and markets are expecting further adjustment amidst distortions in the global economy.

The IMF also urged the US to facilitate free trade, noting that “especially at a time when inflation is high and supply chains are strained, that we can see clear benefits in rolling back the tariffs that were introduced over the last 5 years” and to work with other countries to address longstanding concerns regarding the global trading system. # Fed Policy on Path to Reduce Inflation, IMF Chief Georgieva Says