BERLIN (Reuters) – Gita Gopinath, the first deputy managing director of the International Monetary Fund, said that U.S. inflation is “very stubborn” and that the Federal Reserve should “stay the course” and tighten monetary policy or lose credibility.
This year, the Fed has raised interest rates faster than at any time since the early 1980s, when inflation was even higher and so ingrained in everyday American life that it took pushing short-term borrowing costs and the unemployment rate into double digits before price pressures finally eased.
“Inflation in the United States is still very stubborn,” Gopinath told the German business newspaper Handelsblatt on Monday.
In comments that were published in German, she said, “If the Fed were to signal in this situation that they were not going to tighten monetary policy as planned after all, that would be a big loss of credibility.”
“Given the economic data, they should stay on the same path.”
When she talked about Europe, she said, “Growth in the euro zone will slow down a lot. We only expect 0.5% growth next year.
Still, she said the European Central Bank should “normalise its monetary policy by the end of the year and then tighten” in 2019.
The ECB has been removing policy support all year, at first slowly and then more quickly in recent months. At its last two meetings, it raised rates by a total of 125 basis points, which is the fastest rate of policy tightening in history.
