The IMF sees a larger danger to the global economy if central banks drop interest rates too soon than if they move “slightly” too late, according to Managing Director Kristalina Georgieva on Thursday.
The US Federal Reserve, the European Central Bank (ECB), and others have kept interest rates high in recent months in an attempt to bring inflation back down to target after a post-pandemic increase in prices.
With inflation already declining in many of the world’s leading and emerging nations, the focus has shifted to whether rates should be decreased to boost investment and economic growth.
“Our team has looked back in history, and the conclusion they drew is that the risk of premature easing is higher than the risk of being slightly behind,” Georgieva told reporters during a briefing at the IMF in Washington.
“But don’t keep it tight if you don’t have to,” she told me. “So look at the data, act on the data.”
Georgieva’s views came a day after the US Fed’s rate-setting committee voted to keep interest rates unchanged. Fed Chair Jerome Powell shot down the prospect of cutting interest rates at the next meeting in March, sending Wall Street markets down.
“I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to cut,” the senator told reporters on Wednesday.
Earlier this week, ECB President Christine Lagarde stated that policymakers were convinced that rate decreases were imminent, but would not commit to a precise date.
Georgieva told reporters on Thursday that the United States was close to having a “soft landing,” which occurs when policymakers bring inflation back to target without sparking a recession.
“We are poised for soft landing, it’s not done,” she went on to say. “You’re still 50 feet above ground and we know that until you land it’s not over.”