New inflation warning: Get used to high interest rates, IMF says

The International Monetary Fund has warned that stubborn inflation could keep interest rates higher for longer than expected, increasing fiscal and financial risks around the world.

Persistently high prices for services — which include haircuts, hotels and restaurants — as well as escalating trade tensions are propping up inflation and raising the prospect that interest rates will stay high for a while yet, the IMF cautioned Tuesday in its latest World Economic Outlook.

The warning highlights that the global economy is not yet in the clear when it comes to inflation, which explains the caution on the part of central banks in cutting interest rates. High borrowing costs, in turn, are prolonging the squeeze on household and business finances.

Last week, Federal Reserve Chair Jerome Powell said central bank officials in the United States needed “greater confidence that inflation is moving sustainably” toward their 2% target before going ahead with the first interest rate cut.

 

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