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IMF-US-ECONOMY-INFLATION
IMF says U.S. fiscal stimulus raises risks of inflation surprise
WASHINGTON, July 4, 2018 (BSS/Xinhua) – The International Monetary Fund
(IMF) said on Tuesday that U.S. fiscal stimulus, the sweeping tax cuts and
increased government spending, could raise the risk of an upward surprise in
U.S. inflation and trigger financial market volatility.
“At the current stage of the business cycle, the expansionary fiscal
policy stance, while boosting U.S. and global output in the near term, could
increase risks and uncertainties in the medium term,” the IMF’s executive
directors said in a statement on its annual check-up of U.S. economic
policies.
“They pointed to an inflation surprise as an important risk that, if
realized, could create volatility in financial markets, with negative global
consequences,” the IMF said, noting that emerging markets with weaker
macroeconomic fundamentals could face the risk of a marked reversal of
capital flows.
The IMF estimated that core U.S. inflation would rise modestly above the
Federal Reserve’s target of 2 percent by mid-year and the central bank is
likely to accelerate the pace of interest rate hikes.
The Fed last month raised short-term interest rates by a quarter of a
percentage point and envisioned two more rate hikes in the second half of the
year.
The IMF’s executive directors also raised “significant concerns” over the
Trump administration’s recent trade policy proposals that could have damaging
effects beyond the U.S. economy, trigger retaliatory responses, and undermine
the open, fair, rules-based multilateral trading system.
The Trump administration has recently unilaterally imposed high tariffs on
steel and aluminum imports on the grounds of national security, which has
drawn strong opposition from the domestic business community and major U.S.
trading partners.
“Directors urged the authorities to work constructively together with
their trading partners to reduce trade barriers and resolve trade and
investment disagreements without resorting to harmful unilateral actions,”
said the IMF.
BSS/XINHUA/HR/1420