The US Federal Reserve (Fed) should not relax yet in the fight against inflation, according to the deputy managing director of the International Monetary Fund (IMF), Gita Gopinath, for whom the US central bank has to “stay the course” and continue raising interest rates.
“If you look at the indicators in the labor market and if you look at the components of inflation, such as inflation in services, I think it’s clear that we haven’t turned the corner yet in terms of inflation,” the economist said in an interview with ‘Financial Times’.
In this sense, Gopinath considers it “important” that the Fed “maintain a restrictive monetary policy” until there is a “very defined and lasting decrease in inflation” that is evident in wages and sectors not related to food or energy.
For the ‘number 2’ of the IMF, the main concern in relation to the behavior of inflation comes from the resilience shown by the US labor market, where the unemployment rate is still hovering around historical lows and the shortage of workers contributes to promoting salary increases that make it difficult for the Fed to reach its 2% inflation target.
On the other hand, Gopinath said that she expects China’s economy to suffer significantly in the short term as a result of Covid-19 and warned that the slowdown in the Asian giant would have a negative impact on global growth.
As for Europe, Gopinath expects monetary tightening to stretch out longer than the Fed’s. “We’re looking good to 2024 before we start to see inflation move closer to the ECB’s target,” he says, adding that the fiscal support implemented by European governments to address the rising cost of living would lengthen the process.
(Reference image source: dpa; RT news, via web)