The International Monetary Fund has cautioned central banks against the dangers of hasty interest rate reductions.
Yesterday, the managing director of the International Monetary Fund, Kristalina Georgieva, announced that the Fund sees a greater risk to the global economy if central banks start lowering interest rates earlier rather than moving a little later.
The Federal Reserve, the European Central Bank, and other banks have maintained high interest rates in recent months in an attempt to restore inflation to desired levels following price increases after the COVID-19 pandemic.
With inflation now declining in many advanced and emerging economies worldwide, attention has shifted to when banks should start lowering interest rates to stimulate investment and economic growth.
Georgieva said at a press conference in Washington, “Our team has looked at history, and the result we have reached is that the risk of early easing (of interest rates) is higher compared to being a little behind, calling for a return to data and acting accordingly.”
Comments from the Managing Director of the International Monetary Fund came after a vote from the Federal Reserve’s interest rate-setting committee in favor of maintaining the current interest rate level.
Federal Reserve Chairman Jerome Powell dismissed the idea of lowering interest rates at his upcoming meeting in March, leading to a decline in stock prices on Wall Street.
On Wednesday, he told journalists, “I don’t believe it is likely for the committee to reach a level of confidence by the March meeting in order to determine March as the date for the reduction.”
Earlier this week, Christine Lagarde, the President of the European Central Bank, stated that policymakers are confident that a reduction in interest rates is coming, but they will not be bound by a specific deadline.
Guryeva confirmed to journalists yesterday that the United States is approaching what is called “a soft landing”, where policymakers bring inflation back to the desired target without causing a recession.
She said, “We are preparing for a smooth landing, the matter is not over yet,” adding, “We are still 50 feet above the ground, and we know that the matter is not over until we land.”
