The International Monetary Fund (IMF) says that the US Federal Reserve (Fed) should start raising its interest rates in late 2022 or early 2023 as increased government spending puts inflation directly above its long -term average target.
The IMF’s assessment of US economic and financial developments released on Thursday, also mentioned that the central bank is likely to start reducing asset purchases in the first half of 2022.
Following the rapid recovery and expectations of continued fiscal support as well, the IMF projects the US economy to grow around 7% this year, followed by growth of 4.9%, 1.9% and 1.7% in 2022, 2023 and 2024.
The IMF added that the reopening of the economy will create considerable uncertainty in the price index of personal consumption expenditure in the next few months, making it difficult to determine inflationary trends.
However, the IMF also forecast a temporary increase in inflation, with the rate of inflation peaking at 4.3% and falling to around 2.5% by the end of 2022.
