Economy
The problem of high US inflation has not yet been solved- deputy head of the IMF
The problem of high US inflation has not yet been solved and it is too early for the Federal Reserve (Fed) to celebrate victory, despite the slowdown in consumer price growth, says Gita Gopinath, First Deputy Managing Director of the International Monetary Fund (IMF).
“If you look at labor market indicators or very persistent components of inflation, including service sector prices, it’s clear that the problem of high inflation is not yet solved,” Gopinath told the Financial Times, noting that the IMF is advising the Fed to “stay the course” on tightening policy.
She said it is crucial that the U.S. central bank stick to “restrictive monetary policy” until it achieves a “decisive and sustained slowdown in inflation,” which manifests itself in wages as well as in segments outside food and energy.
Gopinath believes that the Fed should raise the rate to 5 percent and keep it at that level for the rest of this year. Unlike some other economists, she does not think that monetary tightening in the US is excessive.
Is the U.S. inflation rate high?
In December the Fed raised the rate by 50 basis points (bps) – to 4.25-4.5% per annum, while at the previous four meetings it was increasing it by 75 bps. At the same time, Fed Chairman Jerome Powell said the U.S. Central Bank will raise the rate until it meets its inflation targets. The negative impact on the economy can be traced on the price chart of the S&P 500 Index.
Minutes from the December Fed meeting showed that none of the Fed’s leaders believed it was prudent to cut the benchmark interest rate in the early part of the year, as the financial markets expected.
Meeting participants generally believed that “maintaining restrictive monetary policy for an extended period until inflation clearly moves toward 2% would be warranted,” the minutes said.
Speaking about the situation in China, Gopinath noted that China’s economy will face serious difficulties in the near term due to a rise in COVID-19, and this will have a negative impact on global economic growth.
Later this year, however, demand in China will begin to recover, she believes. The IMF will release new forecasts for the global economy this month. Last October, the fund projected U.S. GDP growth of 1 percent in 2023; the eurozone 0.5 percent, and China 4.4 percent.
According to Gopinat, the U.S. has a pretty slim chance of avoiding a recession this year. She also expects monetary tightening in the eurozone to last longer than in the U.S., given that regulators have to deal with the effects of the energy crisis caused by the situation in Ukraine.
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© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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