IMF: "Little room for the Fed to cut rates this year"

The International Monetary Fund (IMF) said the U.S. Federal Reserve (Fed) is expected to deliver only one interest-rate cut this year.

According to Bloomberg on the 2nd (local time), the IMF said in its "Article IV consultation" report released the day that the Fed would cut the policy rate once by the end of this year. The Article IV report is the IMF’s annual assessment of the U.S. economy. In the report, the IMF said, "Overall, there is not much room to lower the policy rate over the coming year."

The IMF projected that the U.S. policy rate would reach 3.25~3.5% by the end of this year. The current U.S. policy rate is 3.5~3.75%. The IMF said, "This level of interest rates will allow the economy to achieve full employment and 2% inflation through the first half of next year."

What the IMF is concerned about is inflation driven by rising energy prices. The IMF assessed that "greater monetary policy easing would be possible only on the premise that inflation pressures do not rise, including a material deterioration in the labor market outlook and an increase in short-term inflation expectations stemming from higher oil and commodity prices."

The IMF’s Executive Board also said in a separate statement that day that "there is little room for the Fed to cut rates this year." The Board noted that "in particular, rising energy prices and the potential pass-through to core inflation, as well as upside risks to global commodity prices, could further delay a return to the inflation target."