IMF: Higher US Rates Could Become a Worry if They Persist

• IMF Chief Georgieva expresses concern over the impact of higher U.S. interest rates on the global economy, noting that they make the U.S. more attractive for financial flows, potentially leaving other countries struggling.
• While acknowledging the prudence of the U.S. Federal Reserve's actions, Georgieva suggests that the U.S. government could explore additional measures to prevent overheating of the economy, although she doesn't provide specifics.
• Higher interest rates lead to a stronger dollar, weakening other countries' currencies, which could pose challenges to financial stability if sustained over a prolonged period. Recent consumer-level inflation data casts doubt on the Fed's forecast of rate cuts later in the year, with reports indicating stronger inflation than anticipated, prompting investors to reconsider their expectations for the timing of rate adjustments.
• Georgieva highlights the strengths of the U.S. economy, including its innovation, robust labour market supported by immigration, and recent government initiatives such as the Inflation Reduction Act and COVID aid. The IMF sees potential for the U.S. government to address inflation concerns and navigate towards a soft landing for the economy.

(Source: Reuters)