IMF Georgieva: Possible Fed rate cut in late 2024, but don’t hurry

In an interview with CNBC on March 15, 2023, International Monetary Fund (IMF) Managing Director Kristalina Georgieva shared her perspective on the potential future interest rate moves by the Federal Reserve (Fed). According to Georgieva, she anticipates that by the end of this year, the Fed will have reached a point where it could consider reducing interest rates. However, she strongly advised against any hasty decisions and emphasized the importance of making data-driven decisions.

The Federal Reserve is the central banking system of the United States, responsible for implementing monetary policy and managing the country's currency, the U.S. dollar. The Federal Open Market Committee (FOMC), which is a part of the Federal Reserve System, sets the benchmark interest rate, commonly referred to as the federal funds rate.

The federal funds rate is the interest rate at which banks lend reserve balances to each other on an overnight basis. This rate influences other interest rates in the economy, including those for mortgages, car loans, and credit cards. Lower interest rates can make borrowing cheaper and stimulate economic growth, while higher interest rates can help curb inflation and cool down an overheating economy.

The Fed has raised interest rates several times since the beginning of 2022 to combat inflation, which has been running at multi-decade highs. The latest increase was a quarter-point hike on March 22, 2023, bringing the target range for the federal funds rate to 5.00% to 5.25%. This is the highest level since 2007.

Georgieva's comments come as inflation continues to remain elevated, with consumer prices rising at a 6.0% annual rate in February, according to data from the U.S. Bureau of Labor Statistics. However, there are signs that inflation may begin to ease as supply chain disruptions caused by the pandemic gradually improve and energy prices stabilize.

The IMF's latest World Economic Outlook, released on March 15, 2023, projects global economic growth of 3.2% this year and 3.5% in 2024. The organization also forecasts that inflation will decline to 5.7% this year and 3.6% in 2024.

Georgieva's statement about a potential Fed rate cut in late 2024 is consistent with these projections. However, she emphasized the importance of data-driven decisions and not rushing into any action prematurely. This is likely a reference to the fact that inflation remains high and the labor market remains strong, which could argue against a rate cut. Additionally, there are concerns about the potential for further geopolitical shocks and other uncertainties that could impact the economic outlook.

In summary, IMF Managing Director Kristalina Georgieva expects the Federal Reserve to be in a position to lower interest rates by the end of 2024. However, she cautioned against any hasty action and emphasized the importance of making data-driven decisions. The Fed has raised interest rates several times since the beginning of 2022 to combat inflation, which remains elevated, and the labor market remains strong. The IMF projects global economic growth and inflation to decline over the next two years, which could pave the way for a potential rate cut. However, there are also concerns about geopolitical risks and other uncertainties that could impact the economic outlook and influence the Fed's decision-making process.