US Fed would likely need to raise rates in late 2022: IMF

WASHINGTON - The ongoing rapid recovery and expectations of additional fiscal support in the coming months will necessitate a shift in US monetary policy, the International Monetary Fund (IMF) said Thursday, anticipating interest rates to start rising as soon as late 2022.

Driven by unprecedented fiscal and monetary support, combined with the rollout of vaccination over the past several months, the US economy is expected to grow by around 7 percent this year, the IMF said in a statement after the conclusion of the Article IV Mission, the multilateral lender's annual assessment of countries' economic and financial developments.

The reopening of the economy will create "considerable unpredictability" in personal consumption expenditure inflation during the next several months, "making it very difficult to divine underlying inflationary trends," the IMF said.

Presuming IMF staff's baseline outlook and fiscal policy assumptions are realized, policy rates would likely need to start rising in late 2022 or early 2023, with asset purchases starting to be scaled back in the first half of 2022, according to the IMF.

After its latest policy meeting in mid-June, the US Federal Reserve kept its benchmark interest rates unchanged at the record-low level of near zero, and pledged to continue its asset purchase program at least at the current pace of 120 billion US dollars per month, resisting sending out signals on the timeline to taper its bond buying program.

"We don't see overheating as the most likely outcome," IMF Managing Director Kristalina Georgieva told reporters at a virtual press conference Thursday afternoon. "At the same time, we cannot ignore the risk that a sustained, faster rise in inflation would pose to US and the world economy."

A slower rebound in labor force participation -- due to public health concerns, retirements, incentive effects from unemployment benefits, or delays in reopening schools and childcare -- could create a larger mismatch in the labor market and push wages and prices higher, according to the IMF, noting that supply chain disruptions could prove to be more persistent.