IMF Views Fed Rate Cut as Appropriate

By David Lawder

WASHINGTON (Reuters) – The International Monetary Fund (IMF) considers the Federal Reserve's recent interest rate cut and more cautious outlook as suitable amid high U.S. economic uncertainty, stated IMF spokesperson Julie Kozack on Thursday.

Kozack noted, "Data from the last few months shows that the labor market continues to cool while inflation has been somewhat higher than expected, but still trending down toward the target." She affirmed that this backdrop makes the Fed's actions appropriate.

The IMF asserts that the U.S. disinflation process has proven less costly in terms of jobs than previously feared. They expect core PCE inflation, the Fed's preferred measure, to end 2024 just under 3% as it moves towards the 2% target.

Earlier on Thursday, the Bank of Japan (BOJ) retained unchanged interest rates, providing few signals on when it might consider raising borrowing costs, awaiting U.S. President-elect Trump’s economic and tariff strategies.

Kozack also noted that the IMF finds the BOJ's actions appropriate. "We recommend that they continue a data-dependent monetary policy in their efforts to normalize policy while ensuring inflation returns to target," she remarked regarding the BOJ.

In relation to Trump's plans for a U.S. strategic bitcoin reserve, Kozack refrained from commenting, stating the IMF will fully evaluate Trump's policies once implemented after January.

The IMF's recent $2.4 billion loan agreement with El Salvador mandates the country reduce official bitcoin activities. Kozack mentioned that the IMF identifies both opportunities and risks associated with crypto assets, emphasizing the importance of having policy frameworks to manage potential risks to financial stability and consumer protection.

She acknowledged the growing adoption of underlying crypto asset technology by financial institutions for payment systems and operations. "It’s crucial to recognize the strong investor appetite for crypto assets, which reflects some assessments that they may offer diversification benefits in asset allocation," she added.