International Monetary Fund Director Kristalina Georgieva announced on Thursday that the Fund sees a greater risk to the global economy if central banks start cutting interest rates too early than if they move “a little” late.
The US Federal Reserve, the European Central Bank and other banks have kept interest rates high in recent months in an attempt to return inflation to the desired level following the rise in prices after the Covid epidemic.
With inflation now declining in many advanced and emerging economies globally, attention has turned to when banks should start cutting interest rates to stimulate investment and economic growth.
“Our team took a look at history, and the conclusion it reached is that the risk of early easing (of interest rates) is higher compared to being a little behind,” Georgieva said during a press conference in Washington.
The IMF Director’s comments came the day after the US Federal Reserve’s interest rate setting committee voted in favor of maintaining the current level of interest rates. Federal Reserve Chairman Jerome Powell ruled out the idea of a rate cut at its next meeting in March, sending stocks on Wall Street lower.
Powell told reporters on Wednesday, “I do not think it is likely that the committee will reach a level of confidence by the March meeting to set March as the date for the reduction.”
Earlier this week, European Central Bank President Christine Lagarde said that policymakers are confident that interest rate cuts are coming, but they will not commit themselves to a specific date.
Georgieva indicated to reporters on Thursday that the United States is close to achieving what is called a “soft landing” when policymakers return inflation to the desired target without causing a recession.
She said, “We are preparing for a soft landing. The matter is not over yet,” continuing, “We are still 50 feet above the ground, and we know that the matter is not over as long as we do not land.”
