Gita Gopinath, the esteemed first deputy managing director of the International Monetary Fund (IMF), recently shared her insights during an interview with CNBC at the ECB Forum in Portugal. In her discussion, Gopinath emphasized that major central banks should maintain higher interest rates for a longer period than anticipated by some investors.
Gopinath acknowledged the efforts made by central banks to combat economic challenges, stating, “We also have to recognize that central banks have done quite a bit… But that said, we do think they should continue tightening and importantly they should stay at a high level for a while.” Speaking to CNBC’s Annette Weisbach, Gopinath expressed her belief that contrary to market expectations of a swift decrease in rates, central banks should persevere with their current stance for an extended duration.
Since July 2022, the European Central Bank (ECB) has already raised rates, increasing its main rate from -0.5% to 3.5%. Meanwhile, the U.S. Federal Reserve embarked on a hiking cycle in March 2022, but has chosen to pause at the moment, diverging from Europe’s approach.
A recent survey of U.S. economists conducted in late May shows a shift in their predictions for the Fed to cut rates. They now anticipate a rate cut in the first quarter of 2024, as opposed to the previous expectation of the final quarter of this year.
For the IMF, however, the top priority lies in addressing inflation. Gopinath emphasized, “It is taking too long for inflation to come back to target, which means that central banks will have to remain committed to fighting inflation even if it means accepting weaker growth or a further cooling in the labor market.” She aptly described the current macroeconomic landscape as “very uncertain.”
Please note that this story is still developing and we will provide updates in the near future.
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