The director of the IMF expects a reduction in US interest rates

Kristalina Georgieva, director of the International Monetary Fund, told Reuters that the Federal Reserve (the US central bank) may cut interest rates again this year, but it will have to carefully balance declining growth prospects with signs that the inflation slowdown has stopped.

Georgieva stated that the US economy proved strong and exceeded most expectations with its growth in the second quarter by 3.8 percent, and that consumer demand remains strong despite indicators that show that employment is not as strong.

“It’s a very unclear picture,” Georgieva added in an interview on Wednesday. “So, in this environment, given that inflation has stopped slowing and that the economy may be a little weak as well, it is very important that the Federal Reserve does the right thing.”

The US central bank cut interest rates by a quarter of a percentage point at its meeting in September, a move that Chairman Jerome Powell and others described as a way to keep policy tight enough to rein in the economy and put downward pressure on inflation, while providing a more flexible policy that could help insure against rapid labor market weakness.

She said that consumers have not yet felt the full impact of US President Donald Trump’s imposition of high customs duties because companies had increased their inventories before raising the duties, noting that some companies with large profit margins are bearing the cost.

She added that Trump’s hike in tariffs comes after decades of very low tariffs in the United States and moves taken by other countries about a decade ago to reduce their duties.

Trump’s change in that equation has transformed the global economy into a truly multipolar one, as many countries are now exploring opportunities to cooperate with regional partners or sign multilateral agreements with other regions.

This new world will likely continue as is, she said.

She continued, “I don’t think we will go back to the world that we had, if you want to call it that, before the Covid-19 pandemic, before all these shocks came and hit us… I see huge potential in places like the Association of Southeast Asian Nations (ASEAN), like the Gulf, and some areas in Africa where there are strong economies, to move in this direction towards more regional integration in trade and financial services, and I think that is a good thing.”