IMF: US should keep interest rates high

The International Monetary Fund said on Friday that US interest rates would need to remain high for a longer period of time to contain inflation, adding that Washington would need to tighten fiscal policy to reduce its federal debt.

The IMF said in a report released after its “Article Four” review of US policies that the US economy had proved resilient in the face of more stringent monetary and fiscal policies, but that meant inflation was more stable than expected, Reuters reported.

The International Monetary Fund slightly raised its forecast for US economic growth for 2023, while the slowdown in the economy will lead to a slight increase in unemployment in 2024, according to “Agence France Presse”.

The fund’s revision included a full-year US growth forecast for 2023 of 1.7%, slightly higher than the 1.6% forecast in April, and a 1.2% drop in manufacturing on a comparable basis in the fourth quarter of the year.

In a report, the International Monetary Fund expects real GDP growth in the United States to increase to 1.7 percent this year, down from 1.6 percent expected earlier this year and to 1.0 percent in 2024.

The agency pointed out that the unemployment rate in the US will rise slightly with “slow but strong growth”, which will increase to 4.4 percent by the end of next year, as quoted by “Agence France Presse”.

“Core and core consumer spending inflation is expected to moderate in 2023, above the Federal Reserve’s 2 percent target for 2023 and 2024,” the fund said.

Kristalina Georgieva, managing director of the International Monetary Fund, told a press conference that the US government must reduce the deficit, especially while increasing tax revenues.

He indicated that Washington hoped a resolution to the US debt ceiling crisis would be reached “within 12 hours” to avoid a catastrophic default that would add further shocks to the global economy.

Speaking about inflation, Georgieva said flexible demand and a strong labor market are a “double-edged sword” for the U.S. economy.

“They certainly provided a boost to American households, but they contributed to inflation that was originally expected,” he added.

In return, he says, the central bank’s interest rate “needs to be somewhat higher over the longer term” if it is to succeed in bringing inflation back to its long-term target of 2 percent.