International Monetary Fund Deputy Managing Director Gita Gopinath has reportedly warned that the U.S. has not “turned the corner yet” and it is too early for the Federal Reserve to announce victory in its fight against inflation.
In an interview with the Financial Times, Gopinath urged the Federal Reserve to continue with its rate hikes this year despite a recent moderation in headline inflation.
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“If you see the indicators in the labor market and if you look at very sticky components of inflation like services inflation, I think it’s clear that we haven’t turned the corner yet on inflation,” Gopinath said.
Labor Market: One of the major concerns Gopinath has is the persistent resilience of the U.S. labor market. Employment data released on Thursday showed private sector employment increased by 235,000 jobs in December and annual pay was up 7.3% year-over-year. At the same time, weekly jobless claims declined to 204,000.
As a result, major Wall Street indices closed over 1% lower on Thursday. The SPDR S&P 500 ETF Trust SPY closed 1.14% lower, while the Vanguard Total Bond Market Index Fund ETF BND lost 0.11%.
The second-in-command at the IMF also said it was important for the Federal Reserve to maintain a restrictive monetary policy until there was a "very definite, durable" decline in inflation that would reflect in wages and sectors unrelated to food or energy.
Gopinath also supported the central bank’s benchmark rate rising to about 5% and staying there throughout this year.
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Photo via IMF on Flickr
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