WASHINGTON: Kristalina Georgieva, managing director of the International Monetary Fund (IMF), stated in Washington that there is "a narrower path" to avoiding a US recession and emphasised "severe negative risks" this year and particularly in 2023.
At a virtual news conference on the yearly Article IV consultation to assess the US economy, Georgieva stated, "Based on the policy path established at the June FOMC (Federal Open Market Committee) meeting, and a projected reduction in the fiscal deficit, we thought the US economy will slow."
The Federal Reserve increased the target range for the federal funds rate at each of its latest three meetings because of inflation that was significantly higher than its longer-term objective and an abnormally tight labour market. The central bank increased interest rates by 75 basis points last week, which was the biggest rate increase since 1994.
Georgieva stated that although there may be "some pain" for consumers, the IMF believes the route for the policy rate that the Fed has signalled, to soon get the federal funds rate to 3.5 to 4%, is the correct policy to bring down inflation.
The IMF is aware of the threats to the US economy, she added. This year, particularly next year, "we are genuinely seeing very large downside possibilities," she warned. The IMF chief's comments followed earlier this week's statements by Fed Chair Jerome Powell warning that the bank's rapid rate hikes might send the US economy into recession.