The International Monetary Fund (IMF) recently issued a warning about the increasing risks of inflation, which could impact the possibility of multiple interest rate cuts by the Federal Reserve this year. According to the latest World Economic Outlook update by the IMF, global disinflation is slowing down, leading to potential challenges ahead.
The report highlighted that the United States experienced a rise in inflation earlier in 2024, causing it to lag behind other major economies in terms of easing monetary policies. As a result, traders are now speculating about a potential rate cut by the Federal Reserve in September. In fact, the CME Group’s FedWatch tool indicates that there is a 100% chance of lower rates at the upcoming meeting on September 18, with expectations for another rate decrease in November.
Despite these expectations, IMF chief economist Pierre-Olivier Gourinchas expressed his belief that only one rate cut from the Fed is necessary this year. He pointed out that persistent services and wage inflation could complicate the path towards lower inflation. While he acknowledged that strong wages and service inflation are not necessarily alarming, they raise concerns about the U.S. economy’s future.
Gourinchas’ comments came after the U.S. Labor Department reported that the consumer price index grew at its slowest year-over-year pace since April 2021. However, he cautioned that the increase in inflation earlier in the year suggests that achieving lower inflation and implementing rate cuts may take longer than anticipated by the markets.
Looking ahead, the IMF projects that disinflation rates will decelerate in 2024 and 2025 across advanced economies due to high service inflation and commodity prices. Specifically for the U.S. economy, the IMF revised its growth forecast downward by 0.1 percentage point to 2.6% in 2024 due to cooling consumption and slower-than-expected growth in the beginning of the year.
In addition to the IMF’s insights, CNBC PRO offers valuable information for investors, such as stock recommendations in anticipation of political outcomes, investment opportunities identified by Goldman Sachs, and potential trends in Bitcoin and the stock market. As the possibility of a Fed rate cut looms, investors may consider adjusting their portfolios to capitalize on emerging opportunities in the market.
