COVID-Impacted Sectors Recovery Outlook
Commentary from International Monetary Fund
IMF warns on inflation, says the Fed and others should be prepared
to tighten policy
Central banks such as the Fed should be preparing to tighten policy in case inflation gets out of control, the IMF warned Tuesday.
The cautionary tone mentioned the U.S., as well as the U.K. and other developed economies, as places where "inflation risks are
skewed to the upside."
"While monetary policy can generally look through transitory increases in inflation, central banks should be prepared to act quickly
if the risks of rising inflation expectations become more material in this uncharted recovery," Gita Gopinath, the IMF's economic
counselor and director of research, said in an executive summary accompanying the report.
"Central banks should chart contingent actions, announce clear triggers, and act in line with that communication," she added.
Though the IMF did not single out the Fed, much of its assessment on inflation indirectly addresses a major policy adjustment the
U.S. central bank made in September 2020, when it said it would be willing to allow inflation to run hotter than normal in the
interest of generating full and inclusive employment.
That type of policy carries some danger with it if inflation expectations start to surge, the IMF said.
"In settings where inflation is rising amid still-subdued employment rates and risks of expectations de-anchoring are becoming
concrete, monetary policy may need to be tightened to get ahead of price pressures, even if that delays the employment recovery,"
the report said.
Waiting for employment to rebound more strongly "runs the risk that inflation increases in a self-fulfilling way," which
then would undermine Fed policy, the IMF said.
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- CNBC, October 12, 2021View entire presentation