IMF Says US Monetary Policy Should Focus More On Inflation Risks

The International Monetary Fund (IMF) warned of mounting price pressures and new uncertainty caused by the omicron variant of COVID-19, saying that US central bankers should focus more on inflation risks.

In a blog posted on Friday, the IMF’s chief economist, Gita Gopinath, and Tobias Adrian, director of the fund’s money and capital markets division, warned that the resurgence of the pandemic and the omicron variant had dramatically increased uncertainty about the global economic outlook.

However, they added that the strength of the recovery and the magnitude of underlying inflationary pressures have varied widely between countries, and responses could be calibrated to the unique circumstances of each economy.

In the United States, where consumer prices hit a 31-year high in October, they said, there were reasons for monetary policy to give more weight to inflation risks compared to other advanced economies, including the euro area.

“It would be appropriate for the Federal Reserve (Fed) to accelerate the reduction in asset purchases and move ahead for increases in monetary policy rates.”They wrote, echoing this week’s comments from the president of the Fed, Jerome Powell.

Over time, they wrote, other countries may need to tighten monetary policy earlier than expected if inflationary pressures spread.

In addition, they called on policy makers to remain agile, data-focused, and carefully communicate their actions “so as not to trigger a market panic that would have detrimental effects”, Especially in emerging and developing economies.

Economists said rising food and energy prices had accelerated inflation in many countries, and global factors such as high prices for staple foods could continue to add pressure in 2022.

While inflation is likely to remain high well into 2022 in several countries, measures of inflation expectations for the medium and long term remained close to monetary policy objectives in most economies, the official said. IMF.

Gopinath and Adrian argued that long-term inflation expectations had risen in the United States, but that they remained close to historical averages and still appeared to be well anchored.

Euro area inflation expectations had risen but were expected to be better anchored to the European Central Bank’s 2% target (ECB).

The IMF He said he expects the mismatch in supply and demand to ease over time, easing some price pressures, such as shipping delays and semiconductor shortages, which are likely to improve in the second half of 2022.

However, the supply disruptions and high demand lasted longer than expected and inflation is now likely to be higher for longer than previously thought, noted the IMF.