The International Monetary Fund's new chief economist said on Tuesday he is concerned about increasing signals that inflation expectations are on the rise and may become entrenched at elevated levels, prompting more aggressive monetary policy tightening in advanced economies.
Pierre-Olivier Gourinchas, who started transitioning to the IMF's economic counselor role in January, told Reuters in an interview that the war in Ukraine, which has caused sharp energy and food price increases, may damage expectations for decades-high inflation to start to subside this year.
Some Fed officials have begun to fret publicly that they may have a limited window now to ensure that that remains the case and an aggressive run of rate hikes this year is needed to pull that off.Market signals from elevated Treasury yields have been ahead of consensus private forecasts for inflation, but both are pointing higher than the 2% inflation targets of many central banks, and forecasts have been "sort of moving up," Gourinchas said.
Earlier on Tuesday, the IMF revised down its global economic growth outlook by nearly a percentage point from January due to shocks from Russia's war in Ukraine, with significant downside risks from tighter sanctions. It called inflation "a clear and present danger" for many countries.
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