The International Monetary Fund (IMF) has reported that the return of US inflation to the 2 percent target may take longer than previously anticipated. IMF Spokesperson Julie Kozack said at a press conference that, according to current forecasts, US inflation is expected to decline to the target level by mid-2028.
Kozack stated that headline inflation in the US continues to remain above the target, noting that the commodity price shock caused by the war in the Middle East and persistently high inflation in the service sector are contributing to this outlook.
In June, the IMF had projected that US inflation could return to the target by mid-2027. With this new announcement, the expectation for a return to the target has been pushed back by approximately one year.
Kozack noted that they do not believe recent inflationary pressures are primarily driven by rising labor costs, and that they assess other factors as playing a role in keeping price increases above the target.
MESSAGE OF SUPPORT FOR THE FED
Stating that they find the US Federal Reserve's (Fed) move to tighten monetary policy appropriate, Kozack said that a restrictive policy stance will be necessary in the coming period to support the disinflation process.
Our view is that a restrictive policy stance will be necessary in the period ahead to support the disinflation process and to bring inflation back to target gradually. We fully support the Fed's focus on price stability and its readiness to act as needed to lower inflation.
Kozack said that artificial intelligence investments and potential changes in this field could also impact the inflation outlook. Describing the shock in energy prices and the rapid increase in artificial intelligence investments as two important factors shaping the global economy, Kozack stated that these two topics create effects in different directions on growth while increasing inflationary pressures.
Emphasizing that the IMF is also monitoring the risks that artificial intelligence may pose to financial stability, Kozack conveyed that cyber risks, market movements, and potential changes in valuations are among the topics the institution is tracking.
Kozack pointed out that if expectations regarding the long-term profitability of artificial intelligence investments are reassessed, high valuations in some markets could come under pressure. It was stated that the IMF will continue to closely monitor the effects of these developments on stock markets, the economy, and financial stability.
News Source: 12punto
