IMF: Fed should keep interest rates at current level 'at least until end of 2024'

International Monetary Fund (IMF) Managing Director Kristalina Georgieva said that the US Federal Reserve (Fed) should keep policy interest rates at their current levels at least until the end of 2024. Georgieva made assessments regarding the country's economy at the press conference where the preliminary findings of the audit under the Article 4 consultation on the US economy were shared. Pointing out that the US economy is remarkably strong, Georgieva stated that activity and employment exceeded expectations and that the process of reducing inflation was less costly than many feared. Georgieva emphasized that the US is the only G20 member whose gross domestic product (GDP) exceeded the pre-pandemic level, emphasizing that this is good for both the country and the global economy. Stating that they expect 2 percent growth in the last quarter of this year compared to last year, Georgieva stated that they foresee a similar growth rate to be maintained in the medium term. Georgieva underlined that inflation is on a path towards the Fed’s 2 percent target, reporting that they expect core consumer inflation to be 2.5 percent by the end of this year and to return to the target by mid-2025. Expressing that they also acknowledge the existence of significant upside risks, Georgieva said, “Given these risks, we agree that the Fed should keep policy rates at their current levels at least until the end of 2024.” Stating that the country’s economy is doing well, which provides the Fed with significant room to adjust the policy rate, Georgieva said, “The policy rate should only be lowered after there is clear evidence that inflation has returned to the 2 percent target in a sustainable manner.” “Our inflation forecast is more optimistic than the Fed” Noting that significant external shocks in recent years have pushed the already high debt and deficit levels even higher, Georgieva said that it is time to stop and reverse this trend. Georgieva stated that the US has enacted important fiscal legislation in this regard and that these will have a positive impact in reshaping the country’s economy, saying, “However, this needs to be complemented by steps to put the public debt-to-GDP ratio on a decisive downward path.” IMF Managing Director Georgieva noted that instead of relying on tariffs that could lead to retaliation from trading partners; they think it would be less costly for the US and the global economy to engage in more dialogue, promote fair trade, and revitalize the rules-based international trading system. Also answering questions at the press conference, Georgieva stated that the IMF’s forecast for US inflation was slightly more optimistic than the Fed’s forecast, saying that this was due to the course seen since inflation peaked. Georgieva said, “From our perspective, there is still the potential for an interest rate cut in 2024. Then it is possible that we will see further interest rate cuts in 2025.” “High deficits lead to risk” The statement, which shared the preliminary findings of the IMF’s Article 4 consultation on the US economy, also stated that the US is projected to grow annually in 2024 at 2.6 percent. It was noted in the statement that the large fiscal deficit has created a sustained upward momentum in the ratio of public debt to GDP, and that the ongoing expansion of trade restrictions and insufficient progress in addressing the weaknesses highlighted by the 2023 bank failures also pose significant downside risks. The statement stated that under current policies, general government debt is expected to rise steadily and exceed 140 percent of GDP by 2032, emphasizing that high deficits and debts pose an increasing risk to the US and global economy.