IMF says US monetary policy should focus more on inflation risks

The International Monetary Fund (IMF) warned this Friday (3) about the intensification of inflationary pressures, especially in the United States, and also new uncertainties caused by the Ômicron variant of the coronavirus, stating that the US central bank should focus more on the inflation risks.

In a blog post on Friday, the IMF chief economist, Gita Gopinath, and Tobias Adrian, head of the Fund’s money and capital markets division, warned that the resurgence of the pandemic and the Ômicron variant have strongly increased the uncertainty surrounding the global economic outlook.

But they said the strength of the recovery and the magnitude of inflationary pressures vary widely across countries, and that responses can be calibrated to the unique circumstances of individual economies.

In the US, where consumer prices hit a 31-year high in October, there are grounds, they say, for monetary policy to place greater weight on inflation risks compared to other advanced economies, including the eurozone.

“It would be appropriate for the Federal Reserve (FED) to accelerate the reduction in asset purchases and anticipate the trajectory of interest rate hikes,” they wrote, echoing comments made this week by Fed Chair Jerome Powell.

Over time, they wrote, other countries may need to tighten monetary policy sooner than expected if inflationary pressures become more widespread.

They urged officials to remain nimble, data-focused and communicate carefully their monetary policy actions “so as not to trigger a market panic that would have detrimental effects,” especially to emerging and developing economies.