Economic conditions & trends

IMF: Interest Rates to Drop Once Inflation is Under Control

APR 11 2023·Updated APR 12 2023

Story

Image credit: reuters

The Facts

The International Monetary Fund (IMF) forecasts that increased interest rates in major economies are likely temporary and will reduce once rising prices, caused by factors including the Ukraine War's impact on energy costs, are halted and reverted downwards.
BBC News
While interest rates have been on the rise as central banks fight inflation, IMF analysts concluded in the latest World Economic Outlook that the "natural" rate of interest, which neither stimulates nor discourages economic activity, wasn't changed by the pandemic.
Reuters
The IMF, however, fell short of predicting when rates would return to pre-pandemic levels as it focused on the effects of long-term factors, such as aging populations and low productivity.
BBC News
The World Economic Outlook released on Tuesday also presents the institution's weakest global growth expectations for the medium term in more than 30 years, projecting economic expansion to be 2.8% this year and 3% in 2024.
CNBC
This growth projection is down from its previous 3.4% and 2.9% estimates published in 2022 and in January, respectively, with the possibility of a “hard landing,” in which rising interest rates weaken growth so much as to cause a recession, reportedly rising acutely.
The Associated Press
The economies of Canada, France, Italy, Japan, and the US are expected to grow both this year and the next, while Germany and the UK will see their GDP contract this year prior to a 1% growth in 2024, according to the IMF's individual forecasts for G7 nations.
Guardian

Sources Split

LEFT

CENTER

RIGHT

ESTAB
CRIT

CENTER

PRO
ESTAB

The Spin

Narrative A

Interest rates will not be going down any time soon — in fact, some estimates say they could hit 5.5% in the near future. Central banks’ primary goal must be fighting inflation, and interest rates must remain high in order to get near the 2% goal. It's hard to envision any circumstance where rates go down because if they do, inflation will soar even further out of control.

FOX News

Narrative B

As prices have already been falling after a decline in global energy and shipping costs, inflation is likely to fall below target, and central banks must revisit their current high interest rate policy. While there were reasons to hike rates when energy prices were on the rise and supply chains were bottlenecked, keeping them at this level now can only cause recessions and unemployment.