IMF urges Fed, central banks to keep tightening to reduce inflation

WASHINGTON (Reuters) – The International Monetary Fund on Thursday urged the U.S. Federal Reserve and other global central banks to “stay the course” on monetary policy and remain vigilant in combating inflation.

IMF spokesperson Julie Kozack said inflation momentum has slowed in the United States, but remained a pressing concern.

“If inflation does prove to be more persistent than expected, then the Fed may need to push interest rates higher for longer,” she told reporters at a regular briefing.

She said the IMF would release an updated World Economic Outlook on July 25.

The IMF warned in April that lurking financial system vulnerabilities could erupt into a new crisis and slam global growth this year, edging its 2023 global growth forecasts lower. It forecast real GDP growth of 2.8% in 2023 and 3.0% in 2024 – one-tenth of a percentage point lower than what it predicted in January for each year. The global economy grew 3.4% in 2022.

“We see challenges over the medium term for the global economy, and that requires policy measures to be taken now,” Kozack said. “We believe that central banks should stay the course on monetary tightening to decisively reduce inflation.”

Kozack’s comments on the U.S. economy followed an “Article IV” review of U.S. policies, indicating continued concern about inflation risks and noting that the most recent data had validated its views about the resilience of the labor market.

“We also see that inflation momentum has slowed, but that inflation does remain a pressing concern,” Kozack said. “Our advice remains unchanged, which is that the Fed would need to stay the course on monetary policy to ensure a durable reduction in inflation and to ensure that inflation expectations … remain well-anchored.”

(Reporting by Andrea Shalal; editing by Paul Simao)