It is too early for the Federal Reserve to declare victory in its fight against soaring prices in the US, according to an official from the International Monetary Fund.
In an interview with the Financial Times, Gita Gopinath, the fund's second-in-command, urged the US central bank to press ahead with rate rises this year despite a recent moderation in headline inflation.
She said that it was clear that we hadn't turned the corner on inflation, and that the fund's advice to the Fed was to "stay".
The fund's deputy managing director made the comments after a flurry of data suggested inflation in the US, Europe and other economies might have peaked, as energy prices fall from recent highs and the cost of goods such as home appliances and used cars begins to decline.
The labour market in the US continues to add jobs at an average rate of 400,000 per month. The unemployment rate is close to historic lows and an acute worker shortage has helped to push wage increases to a level that is far too high for the Fed to hit its inflation target.
Gopinath said it was important for the central bank to keep monetary policy restrictive until there was a decline in inflation.
Gopinath said it was difficult to argue that the Fed had tightened too much.
Gopinath backed the Fed's benchmark rate rising to about 5 percent and staying there throughout this year, in an effective endorsement of the latest "dot plot" projections from US central bank officials.
The minutes from the Fed's last meeting in December show that officials think they need to do more to control the economy and inflation. According to the account, policymakers would need to see more evidence to be confident that the situation is under control.
The global economy is facing a number of shocks, including the war in Ukraine and the end of China's zero- Covid policy.
According to Gopinath, China's economy is going to suffer a lot in the near term as it deals with rising hospitalisation and deaths. There is a chance of a rebound later this year.
Half of the European Union will be hit by a recession this year, according to Kristalina Georgieva, the fund's managing director.
Gopinath said it was too early to comment on the new forecasts from the International Monetary Fund. She said there was a narrow path for the US to avoid a recession.
Gopinath thinks monetary tightening in Europe will last longer than the Fed's.
She said that fiscal support implemented by European governments to tackle the cost of living crisis would prolong the process.
There is a different kind of challenge for monetary policy this year. The last year was about monetary policy. How long to stay on hold is a big question for many countries.
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