Central banks around the world shouldn’t rush to relax their fight against inflation even with the Federal Reserve signalling its policy pivot next year, the chief of the International Monetary Fund said Friday.
This was contained in a report by Bloomberg News seen by Nairametrics.
- “Sometimes countries prematurely declare victory and then inflation gets more entrenched and the fight becomes harder,” IMF Managing Director Kristalina Georgieva told reporters in Seoul. “Don’t say hop before you jump.”
The IMF chief joins European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey in voicing caution after the Fed jolted markets Wednesday by indicating its policymakers are turning their attention to cutting borrowing costs in 2024.
She indicated that her advice applied to the case of the Bank of Korea after she met with Governor Rhee Chang-Yong.
Other central banks should consider their situations: Georgieva said the Fed was correct to signal its pivot based on US data, but other central banks should consider their situations.
- “Now that inflation is decreasing and decelerating but at different points in different countries, central banks have to calibrate their actions according to domestic conditions,” she said.
Still, the fight against inflation is in its “very last mile,” she said, advising the BOK not to move any faster along its policy course than data allow.
What you should know
According to Bloomberg, the Federal Reserve pivoted toward reversing the steepest interest-rate hikes in a generation after containing an inflation surge so far without a recession or a significant cost to employment.
While Chair Jerome Powell said Wednesday that policymakers are prepared to resume rate increases should price pressures return, he and his colleagues issued forecasts showing that a series of cuts would be likely next year.
Powell said the topic came up at their meeting, where the Fed decided to keep rates at a 22-year high for a third straight time.
Moreover, Powell’s lack of pushback during his press conference against growing investor expectations for 2024 rate cuts helped spark a massive rally in Treasuries and sent the Dow Jones Industrial Average of stocks to a record high.
Less than two weeks after saying it would be “premature” to speculate on the timing of rate cuts, Powell said officials were starting to turn to that question.
- “That begins to come into view and is clearly a topic of discussion out in the world and also a discussion for us at our meeting today,” Powell said.
Officials decided unanimously to leave the target range for their benchmark federal funds rate at 5.25% to 5.5%, the highest since 2001.
Policymakers pencilled in no further interest-rate hikes in their projections for the first time since March 2021, based on the median estimate.
Updated quarterly forecasts showed Fed officials expect to lower rates by 75 basis points next year, a sharper pace of cuts than indicated in September. While the median expectation for the federal funds rate at the end of 2024 was 4.6%, individuals’ expectations varied widely.
- “His presser certainly had a tone of finality to it,” said Derek Tang, an economist with LH Meyer/Monetary Policy Analytics.
- “He and the whole FOMC saw no need to push back with the dots against the market suspicion of earlier and deeper easing.”
