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IMF Warning Ahead of FED Meeting

“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, IMF economic counselor and director of research.

The above statement is a warning from the IMF, which expects the Fed to start reducing bond purchases, or QE, in the first half of 2022 to battle inflation.

Based on the development of the countries’ economies and financial sectors, the IMF’s assessment followed meetings with lawmakers and government officials.

Overall, the IMF is confident that monetary policy will remain loose for some time. However, there needs to be a clear signal to prepare for the tapering of quantitative easing by the FED and the tapering of other stimulus measures. Moreover, it must be clearly communicated within a strict time frame.

According to the IMF, signaling the end of QE and an earlier-than-expected rate hike could lead the Fed to raise rates twice by 2023.

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