IMF supports imminent start of US Fed easing cycle as inflation, economy slow

By David Lawder

WASHINGTON (Reuters) - The International Monetary Fund said on Thursday it was appropriate for the U.S. Federal Reserve to begin a long-awaited monetary easing cycle at its meeting next week as upside risks to inflation have subsided.

IMF spokesperson Julie Kozack told a regular news briefing that the IMF expected the U.S. economy to slow over the rest of the year, and that this would be reflected in its updated World Economic Outlook forecasts in October.

She said the IMF expects core U.S. personal consumption expenditures index (PCE) inflation ending 2024 at 2.5% and returning to the Fed's 2% target by mid-2025, and recent data show less upside risk to this path.

"That means that we see the imminent start of a loosening cycle, as telegraphed by the Fed, as appropriate," Kozack said. "That said, the upside risks to inflation, while less, have not entirely disappeared and the Fed will have to continue to calibrate the pace and extent of rate cuts with incoming economic data going forward."

Fed Chair Jerome Powell in late August endorsed an imminent start to rate cuts, saying that further weakening of the job market would be unwelcome and that inflation was within reach of the Fed's target. Other Fed policymakers have since signaled that they are ready to cut rates at the bank's Sept. 18 policy meeting.

While the U.S. economy is slowing, its GDP will still be growing at the end of 2024 at about 2%, compared with the fourth quarter of 2023. She declined to say whether the IMF will reduce its overall U.S. growth forecasts, which call for 2.6% full year growth for 2024 and 1.9% for 2025.

(Reporting by David Lawder; Editing by Diane Craft)