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IMF says Fed needs to be cautious before cutting rates until 'at least' year end

2024-06-28

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IMF Managing Director Kristalina Georgieva said the Fed should wait until "at least" the end of the year before cutting rates. The United States is the only G20 economy to grow above pre-pandemic levels, and "strong" growth suggests persistent upside risks to inflation.

"We do recognize important upside risks. Given these risks, we agree that the Fed should maintain its policy rate at its current level until at least the end of 2024," Georgieva said at a press conference on Thursday.

The Fed's current federal funds rate has been in a range of 5.25% to 5.50% since July 2023.

The IMF also predicts that the core personal consumption expenditures price index - the Fed's preferred inflation measure - will reach around 2.5% by the end of 2024 and reach the Fed's 2% target rate by mid-2025, earlier than the Fed's own forecast for 2026.

Georgieva said the strength of the U.S. economy during the Fed's rate hike cycle has benefited from increases in labor supply and productivity. She also stressed that before the Fed cuts rates, there needs to be "clear evidence" that inflation is falling to its 2% target.

Still, the IMF's "more optimistic" assessment of the downward trajectory of inflation is based on signs of a cooling U.S. labor market and weakening consumer demand.

Georgieva said: "I want to acknowledge that one lesson we have learned from the past few years is that we are in a more uncertain period. This uncertainty is also ahead. However, we are confident that the Fed will get through this and will certainly be as cautious as it was last year."

Combining the above news, it can be seen that Georgieva still believes that the Fed may cut interest rates once this year, but it may have to wait until the end of the year. This is a potential negative for the US dollar index, which may limit its upside, and investors need to be vigilant.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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IMF says Fed needs to be cautious before cutting rates until 'at least' year end

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