By David Lawder
IMF Supports Fed's Monetary Easing Cycle Amid Subsiding Inflation Risks
WASHINGTON (Multibagger) - The International Monetary Fund (IMF) stated on Thursday that it is appropriate for the U.S. Federal Reserve to begin a long-awaited monetary easing cycle at its upcoming meeting next week, as upside risks to inflation have diminished.
IMF spokesperson Julie Kozack mentioned during a regular news briefing that the IMF foresees the U.S. economy slowing down in the remainder of the year, which will be reflected in the updated World Economic Outlook forecasts in October.
She added that the IMF predicts core U.S. personal consumption expenditures index (PCE) inflation to reach 2.5% by the end of 2024 and return to the Fed's 2% target by mid-2025. Recent data indicates reduced upside risks to this trajectory.
"This implies that we anticipate the imminent initiation of a loosening cycle, as indicated by the Fed, to be appropriate," stated Kozack. "However, although the upside risks to inflation have diminished, they have not completely disappeared, and the Fed will need to adjust the pace and extent of rate cuts based on incoming economic data."
Fed Chair Jerome Powell endorsed the start of rate cuts in late August, emphasizing that further weakening of the job market would be unwelcome and that inflation was nearing the Fed's target. Other Fed policymakers have also signaled readiness to cut rates at the bank's September 18 policy meeting.
Despite the U.S. economy slowing down, it is projected to continue growing at around 2% by the end of 2024 compared to the fourth quarter of 2023. Kozack refrained from stating whether the IMF will revise its overall U.S. growth forecasts, which currently stand at 2.6% for full-year growth in 2024 and 1.9% for 2025.
Analysis: The IMF's support for the Fed's monetary easing cycle indicates a shift in economic policy to counteract slowing growth and diminishing inflation risks. This move could lead to lower interest rates, potentially impacting borrowing costs, investment decisions, and overall economic activity. Investors should monitor central bank actions closely to assess how these changes may affect their portfolios and financial strategies.