In its recent World Economic Outlook update, the IMF mentioned that “the trend of global disinflation is slowing down, indicating challenges along the way.” The report noted that the increase in inflation in the U.S. earlier in 2024 has made it lag behind other major economies in terms of easing monetary policies, as stated in the report.
At the same time, traders are increasingly expecting a rate cut by the Fed in September. According to the CME Group’s FedWatch tool, the market has fully priced in a rate decrease at the meeting on September 18. Traders are also anticipating another rate cut in November.
Yet, IMF’s chief economist Pierre-Olivier Gourinchas highlighted on CNBC’s “Squawk on the Street” that one rate cut by the Fed this year would be the most suitable, pointing out persistent challenges like services and wage inflation inhibiting the path to reducing overall inflation.
Gourinchas mentioned that while strong wages and service inflation are “not necessarily concerning,” they remain key issues for the U.S. economy. His remarks followed the U.S. Labor Department’s report showing that the consumer price index had its slowest year-over-year growth since April 2021 last month.
Despite the positive Consumer Price Index (CPI) report, Gourinchas indicated that the earlier rise in inflation this year suggests that achieving lower inflation and implementing rate cuts “may take longer than what the markets anticipate.”
“We believe there might be some rate cuts towards the end of this year, maybe just one in 2024 and possibly further cuts in 2025,” Gourinchas mentioned.
Globally, the IMF projects a deceleration in disinflation rates in 2024 and 2025 across advanced economies due to elevated service inflation and commodity prices.
Focusing on the U.S. economy, the IMF revised its growth forecast down by 0.1 percentage point to 2.6% in 2024 due to reduced consumption and slower-than-expected growth in the early part of the year.
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