The U.S. Federal Reserve should speed up the elimination of its bond-buying program and tighten its monetary policy to rein in the inflationary pressures facing the country, said the International Monetary Fund on Friday.
“It would be appropriate for the Federal Reserve to accelerate the taper of asset purchases and bring forward the path for policy rate increases.”
“The point is, we can’t act as if we’re sure of that,” he said. “We’re not at all sure of that. Inflation has been more persistent and higher than we’ve expected.”
The IMF blog post talked about uncertainties posed by the latest COVID-19 variant, Omicron, and advised nations around the world to calibrate responses based on their unique economic circumstances.
Core consumer price inflation refers to a measure of inflation without the costs of volatile food and fuel. Based on the data from the IMF, the United States leads all other developed nations including the UK, Canada, Australia, and the euro zone in terms of core inflation.
The rise in core inflation is attributed to strong demand that is supported by favorable fiscal and monetary policies. Combined with supply shortages, this has led to the current stage of increase in prices, according to the IMF. Price pressures are predicted to cool down next year.
“We expect the mismatch in supply and demand to attenuate over time reducing some price pressures in countries. Under the baseline, shipping delays, delivery lags, and semiconductor shortages will likely improve in the second half of 2022. Aggregate demand should soften as fiscal measures come off in 2022.”
The IMF reiterated that in countries where “inflationary pressures [are] more acute it would be appropriate to accelerate the normalization of monetary policy.”
The U.S. consumer price index has risen by 6.2 percent, the highest level it has reached in 31 years.
“In this environment it is essential for major central banks to carefully communicate their policy actions so as not to trigger a market panic that would have deleterious effects.”