The International Monetary Institution (IMF) today issued a warning that further fiscal support in the United States could drive inflationary pressures and warned that the risk of continued price increases may require the administration to raise interest rates sooner than expected.
U.S. interest rates higher could lead to a tightening of global financial conditions and large capital outflows from developing and developed countries, IMF Managing Director Kristalina Georgieva said today.
The IMF's assessment of U.S. inflation risk emerged amid harsh criticism from Republican lawmakers over President Joe Biden’s plans to spend millions of dollars to increase spending on infrastructure, childcare, and assistance for the disabled and the elderly.
Georgieva also stressed that the U.S. has recorded a rapid economic recovery in the United States, where growth is expected to reach 7% by 2021. This will benefit many countries through increased trade, but rising inflation is likely to continue to rise. The IMF forecasts global growth of 6%.
Other countries are also facing rising commodity and food prices, which are now at their highest level since 2014, putting millions of people at risk of not getting food, the IMF said in its report.
The IMF added, "Further fiscal support in several major advanced economies, including the United States, will benefit broader growth, it will also increase inflationary pressures," the IMF said.
Continued price increases are likely to lead to a tightening of U.S. monetary policy. earlier than expected, This will affect the emerging economies especially.
Finally, the IMF urges countries to pursue accommodative monetary policy, while closely monitoring inflation risks and financial stability.