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IMF Warns of ‘Bumps’ Along Path to Lower Inflation
July 19, 2024
The International Monetary Fund (IMF) is warning that the risks posed by inflation have increased and is calling into question the scope of interest rate cuts that we may see this year.
In its latest World Economic Outlook, the global financial organization noted that “the momentum on global disinflation is slowing, signaling bumps along the path.” The report also called out the stubbornness of inflation in the U.S. in the earlier part of 2024, warning that it may put the U.S. behind other world economies on the path toward normalizing interest rates.
The report comes as traders are becoming more optimistic about the Federal Reserve’s path toward interest rate cuts. The CME Group’s FedWatch tool is pricing in a 100% chance of a rate cut in September, and traders also expect an additional rate cut in November.
IMF economists, however, are warning that only one rate cut from the Fed is appropriate, citing stubbornly high services inflation and still-strong wage inflation as complicating the Fed’s path to its 2% inflation target.
The IMF forecasts that the advanced economies of the world will likely see the rate of disinflation slowing in 2024 and 2025 as services inflation and commodity prices continue to exert upward pressure on inflation readings.
The report also contained updated economic projections and the IMF now expects the U.S. economy to grow by 2.6% this year, down 0.1% from projections made earlier in the year.
