IMF says US monetary policy should focus more on inflation risks

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

In a blog post this Friday (3), the chief economist of the IMF, Gita Gopinath, and Tobias Adrian, head of the Fund’s money and capital markets division, warned that the resurgence of the pandemic and the omicron variant have increased with 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 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, which would have detrimental effects,” especially on emerging and developing economies.

For the Fed’s Bullard, it is necessary to remove expansionary monetary policy

The President of the Fed (Federal Reserve) of St. Louis, James Bullard, asked this Friday (3) that the Fed begin tightening its monetary policy, citing unexpectedly high inflation, strong economic growth and a very labor market. tight and in a position to strengthen even more.

“These considerations suggest that the FOMC at upcoming meetings may want to consider removing (monetary) accommodation at a faster pace,” Bullard said in remarks prepared for handover to the Missouri Bankers Association, referring to the Federal Open Market Committee, that sets US monetary policy at the Fed.

They were written ahead of the release of the US government report showing weaker-than-expected job growth in November.

Fed officials will meet on December 14 and 15 and will consider accelerating the reduction of its stimulus program, which is currently on the verge of ending in June 2022. with the purchase of bonds; interest rates remain close to zero, where they have been since March 2020.

Given the unexpected shock of inflation this year, and despite the lingering risks of the pandemic, Bullard said, “The Federal Open Market Committee (Fomc) must remove expansionary monetary policy.”