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IMF Predict US Fed in Position to Cut Interest Rates Later this Year

POSTED ON July 13, 2024 •   BUSINESS      BY Abiodun Saheed Omodara
A case of meat is pictured at a butcher shop at Reading Terminal Market after the inflation rate hit a 40-year high in January, in Philadelphia, Pennsylvania, US, February 19, 2022. l Credit: REUTERS

The International Monetary Fund stated on Friday that it still believes the Federal Reserve may begin to decrease interest rates later this year and should remain cautious, despite a drop in US June consumer prices leading to expectations of an earlier rate cut, according to Reuters.

IMF representative Julie Kozack informed journalists at a routine press briefing that the disinflation process was underway in the United States.

Kozack's comments followed the release of a report indicating that the US Consumer Price Index declined by 0.1% in June, marking its first monthly decrease in four years.

"We support the Fed's approach to monetary policy, which is based on data and caution. We also anticipate that the Fed will be able to lower rates later this year, and that assessment remains unchanged," said Kozack.

Kozack also acknowledged that US growth has been "exceptionally robust" and that substantial federal spending on COVID-19 relief, infrastructure, clean energy, and semiconductors would have a lasting positive impact on the US economy.

However, Kozack reiterated the IMF's longstanding recommendation for the United States to address its growing debt burden.

"At present, the fiscal deficit is too high, and given the strength of the economy, it is time to take action to decisively reduce the debt-to-GDP ratio.

This will necessitate a comprehensive set of fiscal measures," Kozack remarked.
The IMF now projects that US net interest payments on federal debt are expected to reach 3.2% of gross domestic product in fiscal 2024, ending on Sept. 30, up from 2.4% in fiscal 2023 due to higher interest rates.

According to Kozack, this ratio will "remain elevated even in the medium term" due to increased deficits and debt levels.

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