The U.S. Index is expected to continue to rise? The IMF warns of inflation, saying the Fed should be prepared to tighten policy

On October 13, the IMF warned in a report that the Federal Reserve and other central banks should be prepared to tighten policies to prevent inflation from getting out of control. Although the IMF stated that it basically agrees with the assessment of the Federal Reserve and many economists that the current wave of global price increases will eventually be eased, it also pointed out that these forecasts are "very uncertain."



The IMF carefully referred to the United States, the United Kingdom, and other advanced economies because these countries "inflation risks are biased upward."

IMF economic adviser Gita Gopinath said that although monetary policy can usually see through a temporary rise in inflation, if the risk of rising inflation expectations becomes more apparent in this unprecedented recovery, central banks should be prepared to act quickly.

She added: “The central bank should develop an emergency action plan, announce clear triggers, and take action based on this information.”

Fed officials have stated that the main weapon against inflation is to raise interest rates. But since 2018, the Fed has not raised interest rates.

These are the latest warnings from the IMF on global economic conditions. It is reported that the IMF slightly lowered its global economic growth forecast for this year, lowering the US GDP forecast by a full percentage point from July to 6%, which is higher than the 5.2% forecast for all advanced economies.

With U.S. inflation at a 30-year high, the Fed has to consider when it will begin to withdraw the unconventional policy assistance provided since the outbreak of the epidemic in early 2020.

Although the IMF has not hinted at the Federal Reserve, its assessment of inflation indirectly addresses major policy adjustments by the US Central Bank in September 2020, when it stated that it is willing to allow inflation to operate at a higher temperature than normal to generate complete and inclusive employment.

The IMF said in the report: “With rising inflation and low employment rates, monetary policy may need to be tightened in order to catch up with price pressures, even if it will delay employment recovery.”

The IMF said that waiting for a stronger rebound in the employment situation "there is a risk that inflation will rise in a self-fulfilling manner", which will weaken the Fed's policy.

The Fed uses its so-called "forward-looking guidance" to clearly describe to the public its future intentions and what criteria it will use to change policy. The IMF stated in its warning that communication will be the key to avoiding a damaging impact on the economy caused by changes in policy direction.

Jamie Dimon, CEO of JP Morgan Chase, also believes that US inflation is cooling. He said on Monday that he expects the supply chain issues that caused the price spike to be resolved in 2022.

GMT+8 At 20:30 on October 13, the United States will announce September CPI data. Economists predict that the monthly rate of CPI in the United States in September will rise by 0.3% after a seasonal adjustment, and the annual rate of the CPI in September in the United States has not been adjusted seasonally by 5.3%, which is the same as the previous value.

Based on the above information, it can be seen that the IMF lowered its forecast for global economic growth in 2021, guarded against upside risks of inflation, and called on the Federal Reserve to tighten policy. This is good for the US dollar index and is expected to continue to rise in the future.



Daily chart of the dollar index

GMT+8 At 9:21 on October 13, the U.S. dollar index reported 94.41.