IMF Sees US Inflation Uptrend Risking Tightening Sooner Than Expected

IMF Sees US Inflation Uptrend Risking Tightening Sooner Than Expected

The International Monetary Fund, IMF, said Wednesday that the recent uptrend in the United States (US) inflation risks bringing earlier monetary tightening than expected, which could drive money out of emerging and developing economies.

In a blog post ahead of the Group of 20 meetings of finance ministers and central bank governors in Vienna this week, IMF Managing Director Kristalina Georgieva said there’s a “deepening divergence in economic fortunes” as the global recovery from the COVID-19 pandemic continues.

IMF Sees US Inflation Uptrend Risking Tightening Sooner Than Expected
IMF

“We know that accelerated recovery in the US will benefit many countries through increased trade, and inflation expectations have been stable so far,” she said.

“Yet there is a risk of a more sustained rise in inflation or inflation expectations, which could potentially require an earlier-than-expected tightening of US monetary policy.”

Federal Reserve Chair Jerome Powell said last month the goal is for inflation to be “moderately above 2% for some time so that inflation averages 2% over time and longer-term inflation expectations remain well anchored at 2%.” The policy is expected to be accommodative until then, he added.

Consumer-price inflation jumped 5% annually in May, the biggest increase for the measure since August 2008, the US Bureau of Labor Statistics said on June 10.

Georgieva said central banks will need to “carefully communicate” their plans on monetary policy to help prevent financial volatility.

“Higher interest rates in the US could lead to a sharp tightening of global financial conditions and significant capital outflows from emerging and developing economies,” she said. “It would pose major challenges especially to countries with large external financing needs or elevated debt levels.”

IMF Sees US Inflation Uptrend Risking Tightening Sooner Than Expected