International Monetary Fund (IMF) Managing Director Kristalina Georgieva said that there is “a narrowing path” to avoiding a US recession, highlighting “significant downside risks” this year and especially in 2023.
“Based on the policy path outlined at the June FOMC (Federal Open Market Committee) meeting, and an expected reduction in the fiscal deficit, we expected the US economy will slow,” Georgieva said at a virtual press conference on the annual Article IV consultation to review the American economy.
With inflation well above the Federal Reserve’s longer-run goal and an extremely tight labour market, the Fed raised the target range for the federal funds rate at each of the past three meetings.
Last week, the central bank raised rates by 75 basis points, marking the sharpest rate hike since 1994.
Georgieva said the IMF believes the path for the policy rate that the Fed has signaled, to quickly get the federal funds rate to 3.5 to 4 per cent, is the correct policy to bring down inflation, but there may be “some pain” for consumers.
She also said that the IMF is mindful of the risks to the US economy. “We are actually seeing very significant downside risks this year and especially next year,” she said.
The IMF chief’s remarks came after Fed Chair Jerome Powell said earlier this week that the bank’s aggressive rate hikes could tip the US economy into recession.
“It’s not our intended outcome at all, but it’s certainly a possibility,” Powell told lawmakers at a Congressional hearing.