The IMF sees a greater risk to the global economy if central banks start cutting interest rates too soon than if they move “slightly” too late, Managing Director Kristalina Georgieva said 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 International Monetary Fund in Washington.
“But don’t keep it tight if you don’t have to,” she said. “So look at the data, act on the data.”
Georgieva’s comments come a day after the US Fed’s rate-setting committee voted to hold interest rates steady. Fed Chair Jerome Powell poured cold water on the idea of an interest rate cut at its next meeting in March — sending stocks on Wall Street lower.
“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,” he told reporters on Wednesday.
Earlier in the week, ECB President Christine Lagarde said policymakers there were confident that rate cuts were coming, but would not commit to a specific date.
Georgieva told reporters on Thursday that the United States was close to achieving a so-called “soft landing,” when policymakers bring inflation back to target without triggering a recession.
“We are poised for soft landing, it’s not done,” she said. “You’re still 50 feet above ground and we know that until you land it’s not over.”