Global central banks need to make clear to financial markets the probable need for interest rates to remain higher for longer in order to bring inflation sustainably back down to target and avoid a rebound in price pressures, the International Monetary Fund said on Thursday.
The warning comes amid a significant easing in financial conditions since October as investors looked past the steep run up inby central banks last year designed to bring down an inflation rate that breached 6 per cent in more than 80 per cent of the world’s economies. Instead, as central bankers near a peak in their policy rates and inflation has begun to recede, investors have been betting on a quick pivot to rate cuts.
“Central banks should communicate the likely need to keep interest rates higher for longer until there is evidence that inflation – including wages and prices of services – has sustainably returned to the target,” the head of the IMF’s Monetary and Capital Markets Department, Tobias Adrian, and his two deputies wrote in a blog post.
“Loosening prematurely could risk a sharp resurgence in inflation once activity rebounds, leaving countries susceptible to further shocks which could de-anchor inflation expectations,” they added.and Fed Chair Jerome Powell reiterated that the central bank does not plan to cut rates this year as it needs to see goods disinflation followed by marked progress in the services sector, which is forecast to take longer.
Investors ignored him, piling further into bets the Fed will cut rates this year while stocks rallied. The S&P 500 stock index has risen more than 7 per cent this year and is up more than 15 per cent from its low in mid October. A more comprehensive weekly measure of U.S. financial conditions tracked by the Chicago Fed shows they are currently looser-than-average by historical standards.
You are looking to the same illegitimate people to fix a problem that they themselves created..
The only people who support higher interest rates are rich.