IMF Urges Federal Reserve to Hike Interest Rate To Curb Inflation

• The Fed’s favored measure of inflation, annual PCE core inflation, came at 4.7% in April.
• The Federal Reserve now has greater flexibility to raise interest rates further this year.

In order to bring inflation under control, the International Monetary Fund (IMF) advises the Federal Reserve of the United States to maintain hiking interest rates for a longer length of time. The IMF also recommended that the Biden administration use stricter fiscal policies to bring down the national debt. Under these conditions, the Fed would raise interest rates by 25 basis points in June.

IMF Managing Director Kristalina Georgieva recently said that the yearly appropriations process is not the only means through which the United States Congress may limit the debt. U.S. Federal Reserve members are unanimous in their view that the FOMC must keep hiking federal funds rates until they reach above 6%. The federal funds rate is now floating between 5% and 5.25%.

Greater Flexibility to Raise Rates

The Fed’s favored measure of inflation, annual PCE core inflation, came in at 4.7% in April, up from the predicted 4.6%, as reported on Friday. The employment market is still quite competitive. The Federal Reserve now has greater flexibility to raise interest rates further this year.

In June, a rate rise of 25 basis points is seen as more likely by the market. CME FedWatch Tool predicts a 64% chance of a 25 bps rate rise by the Fed in June, up from 17% a week ago.

The last details of the bipartisan Biden-McCarthy debt limit accord will be ironed out before the looming debt default deadline. The US Treasury’s cash position drops from $316 billion at the beginning of May to the current level of $38.84 billion.

As the US Treasury anticipates issuing $600-$700 billion in Treasury notes in the weeks after the debt limit settlement, the stock and cryptocurrency markets will mostly enter a correction period.