Daily Times

With inflation rising sharply, and the Federal Reserve raising interest rates, the United States is facing an increased risk of a downturn, IMF Managing Director Kristalina Georgieva said Friday.

But any temporary pain caused by a recession would be “a necessary price to pay” to defeat damaging inflation, she said. The Washington-based crisis lender again slashed its US growth forecast to 2.9pc, from the 3.7pc forecast in April, which was cut from the rate predicted at the start of the year. The world’s largest economy rebounded strongly from the pandemic downturn, but that has come with “unwelcome side effects” of rising prices, Georgieva said. While the IMF is confident the Fed’s rate hikes will bring down inflation, “We are conscious that there is a narrowing path to avoiding a recession,” she said in a statement. The Fed last week implemented the biggest increase in its benchmark lending rate in nearly 30 years, as part of its aggressive effort to quell inflation that is at a four-decade high and squeezing American families struggling with rising prices for gasoline, food and housing.

The US economy already was seeing strong demand clashing with supply snarls due to pandemic lockdowns in China and elsewhere, when Russia invaded Ukraine, which has intensified the inflationary pressures. For 2023, growth is expected to slow to 1.7pc, but “narrowly avoid” a recession, according to the annual review of the US economy, known as the Article IV consultation. The IMF chief said the battle against inflation must be the “top priority” despite the impact a US slowdown might have on the global economy. “Success over time will be beneficial for global growth, but some pain to get to that success can be a necessary price to pay,” she said in response to a question from AFP. Georgieva met with US Treasury Secretary Janet Yellen and Fed Chair Jerome Powell and the officials “left no doubt as to their commitment to bring inflation back down.” Nigel Chalk, deputy chief of the IMF’s Western Hemisphere division, said any US recession is likely to be short-lived, given the stockpile of savings and strong business and household balance sheets, and the strong labour market.