IMF issues interest rate warning: 'Until the end of 2024...'

Georgieva made assessments regarding the country's economy at a press conference where preliminary findings of the Article IV consultation on the US economy were shared.

Pointing out that the US economy is remarkably strong, Georgieva stated that activity and employment have exceeded expectations, and that the process of reducing inflation has been less costly than many had feared.

Georgieva noted that the US is the only G20 member whose gross domestic product (GDP) has exceeded pre-pandemic levels, 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 conveyed that they foresee a similar growth rate being maintained in the medium term.

Georgieva underscored that inflation is on a path toward 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.

Acknowledging the existence of significant upside risks, Georgieva said, "Given these risks, we agree that the Fed should keep policy interest rates at their current level at least until the end of 2024."

Georgieva stated that the country's economy is performing well, which provides the Fed with significant room to adjust the policy rate, adding, "The policy rate should only be lowered after there is clear evidence that inflation is sustainably returning to the 2 percent target."

"OUR INFLATION FORECAST IS MORE OPTIMISTIC"

Stating that significant external shocks in recent years have pushed already high debt and deficit levels even higher, Georgieva said it is time to stop and reverse this trend.

Georgieva noted that the US has enacted important fiscal legislation and that these will have a positive impact on reshaping the country's economy, adding, "However, this needs to be complemented by steps to put the public debt-to-GDP ratio on a decisively downward path."

IMF Managing Director Georgieva noted that they believe 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, rather than relying on tariffs that could lead to retaliation from trading partners.

Responding to questions at the press conference, Georgieva stated that the IMF's forecast for US inflation is slightly more optimistic than the Fed's, attributing this to the trend seen since inflation peaked.

Georgieva said, "From our perspective, there is still potential for an interest rate cut within 2024. Then it is possible that we will see more interest rate cuts in 2025."

"HIGH DEFICITS POSE A RISK"

In the statement where the preliminary findings of the IMF's Article IV consultation on the US economy were shared, it was stated that the US annual growth for 2024 is projected at 2.6 percent.

The statement noted that the large fiscal deficit creates a continuous upward momentum in the public debt-to-GDP ratio, and that the continued expansion of trade restrictions and insufficient progress in addressing the weaknesses highlighted by the 2023 bank failures also pose significant downside risks.

The statement expressed 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 increasingly growing risk to the US and the global economy.