The International Monetary Fund warned on Tuesday that upward risks to inflation were increasing, casting doubt on the prospect of the Federal Reserve cutting interest rates multiple times this year.
The International Monetary Fund said in its latest “World Economic Outlook” that “global deflation momentum is slowing, indicating bumps in the road ahead.” The report said that U.S. inflation rose month-on-month in early 2024, putting it on the path of quantitative easing lags behind other major economies.
The report comes as traders increase bets on a rate cut by the Federal Reserve in September. According to CME Group’s FedWatch tool, Wall Street has 100% chance The decision to lower interest rates was made at the September 18 meeting. Traders also expect another rate cut in November.
However, Pierre-Olivier Gourinchas, chief economist of the International Monetary Fund, told CNBC, “quack in the streetOn Tuesday, the Federal Reserve cut interest rates for the most time this year, highlighting still-stubborn services and wage inflation as complicating factors on the path to lower inflation.
Gurinchas said that while strong wage and services inflation are “not necessarily a source of concern,” they are concerns about the future of the U.S. economy. Before his remarks, the U.S. Department of Labor said that the annual increase in the consumer price index last month was the slowest since April 2021.
Despite the encouraging CPI report, Gurinchas said rising inflation earlier this year suggested the path to lower inflation and lower interest rates “may take longer than the market expects.”
“We are more inclined to think that there may be some cuts in the second half of the year, but maybe only one, or 2024, maybe the rest of 2025,” Gurinchas said.
The International Monetary Fund predicts that the pace of deflation in developed economies around the world will slow down in 2024 and 2025 due to generally higher service sector inflation and commodity prices.
For the U.S. economy, due to cooling consumption and lower-than-expected growth at the beginning of the year, the agency lowered its 2024 growth forecast by 0.1 percentage points to 2.6%.
