In an blog post, senior IMF officials said the continued to expect “robust US growth”. Inflation will “likely moderate” late this year as supply disruptions ease and fiscal contraction weighs on demand. Fed’s indication that it would raise interest rate more quickly “did not cause a substantial market reassessment of the economic outlook”.
“Should policy rates rise and inflation moderate as expected, history shows that the effects for emerging markets are likely benign if tightening is gradual, well telegraphed, and in response to a strengthening recovery,” the post noted.
However, “broad-based US wage inflation or sustained supply bottlenecks could boost prices more than anticipated and fuel expectations for more rapid inflation”.
“Faster Fed rate increases in response could rattle financial markets and tighten financial conditions globally. These developments could come with a slowing of US demand and trade and may lead to capital outflows and currency depreciation in emerging markets.”
