IMF's latest warning: Global interest rates may be "higher for longer"! Can the Federal Reserve wait any longer?

The International Monetary Fund (IMF) stated on Tuesday that it expects global inflation to slow down in the second half of this year at a slower pace, increasing the possibility of interest rates remaining "high for a long time."

The reason IMF made this conclusion is quite simple, that service prices will be sticky. This broad category covers everything from housing and haircuts to dining and healthcare.

A new report released by the IMF on Tuesday pointed out, "Service prices hinder the disinflation process, making monetary policy normalization complex. As a result, the upside risks to inflation have increased, increasing the possibility of interest rates remaining high for an extended period."

IMF expects major central banks globally to gradually lower interest rates in the second half of this year, but the pace of rate cuts will vary depending on the inflation path of different countries.

In the United States, traders expect the Federal Reserve to begin cutting rates in September. Federal Reserve Chairman Powell signaled again on Monday that the Fed is nearing a time to start easing monetary policy, citing a shift in recent inflation data that was stronger than expected in the first quarter.

However, he refused to provide a specific timetable, stating that decisions will be made at each meeting based on evolving data and risk balance.

IMF Chief Economist Pierre-Olivier Gourinchas stated that cooling inflation data is allowing the Fed to "very reasonably" shift towards rate cuts, but the still strong U.S. labor market means there is no rush to make decisions. He said:

"With good news on the inflation front, the Fed is now focusing on the labor market and hoping to ensure they don't tighten too much, which is very natural. But they can wait for a while now and see what additional reports bring. As central bankers like to say, rely on data and then adjust direction based on that data."

Gourinchas expects the Fed to cut rates once this year, but he refused to specify the timing of the first rate cut he expects. "We should bear in mind that some inflation may still be stubborn, we have received a good data report for June, but let's see what happens in July and August."

IMF warned that escalating trade tensions could increase the cost of imported goods, thereby increasing the risk of upward inflation. The organization also stated that trade tariffs could have disruptive cross-border spillover effects and trigger retaliation, leading to a costly competition.

In countries where the risk of rising inflation has become apparent, IMF recommends that central banks avoid premature easing and maintain an open attitude towards further tightening when necessary. Central banks should gradually lower rates as data indicate a sustained return to inflation targets.

Regarding economic growth, IMF's outlook for global economic growth this year remains consistent with its last report in April, expecting global GDP to grow by 3.2% in 2024, and by 3.3% in 2025, slightly revised upward from the previous 3.2%. However, the IMF has lowered its growth forecast for the United States this year from 2.7% to 2.6%, while maintaining the economic growth rate for 2025 at 1.9%, as the job market cools, consumer spending slows, and fiscal policy begins to tighten.

In the Eurozone, as the economic slowdown seems to have bottomed out, the IMF has raised its growth forecast for the Eurozone to 0.9% this year, thanks to the strong momentum in the service sector in the first half of the year, with growth expected to rise to 1.5% in the region by 2025.

Furthermore, benefiting from a rebound in consumer spending and strong exports in the first quarter, the IMF expects the Chinese economy to grow by 5% in 2024, an increase of 0.4 percentage points from the forecast in April of this year