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IMF forecasts elevated interest rates amid inflation, recession woes

Yahoo Finance fiscal policy reporter Jennifer Schonberger details International Monetary Fund officials' U.S. inflation forecasts as they weigh the impact of the Fed's next interest rate hike and the significance of a debt limit default on the economy.

Video transcript

SEANA SMITH: Let's talk about the latest data out from the IMF. The IMF director is urging the Fed to remain hawkish to tame persistent inflation. Yahoo Finance's Jennifer Schonberger has the details on that. Jen.

JENNIFER SCHONBERGER: Good afternoon, Seana. IMF Managing Director Kristalina Georgieva saying today, she thinks the US can avoid a recession this year and that the Federal Reserve will need to raise rates again and hold them at that level until later next year. Amid persistent inflation, the IMF out with a brand new report today on the outlook for the US economy, saying that the Fed needs to raise rates by another quarter percentage point to bring them up to a range to 5 and 1/4 to 5 and 1/2 per cent. That would be up from the current range of 5 to 5 1/4.

I asked Georgieva about that in a press conference earlier this afternoon, she seemed to suggest there could be upside to that. Telling me, quote, "Inflation remains stubbornly high. PCE is telling us that the job is not quite yet done." She went on to say, "Frankly, we need to continue to follow the data and see how much it would take to bring inflation back down to target."

The IMF now sees inflation falling slowly, ending the year only around 4%. And expects inflation will remain above the Fed's 2% target through next year. Georgieva, that with Treasury Secretary Yellen and Fed Chair Jay Powell this morning, when I asked her how the meetings went, she told me there was, quote, significant convergence between the views of the Fed and the administration and of what the IMF is suggesting. She added the caveat there that there are aspects of the recommendations that the teams would reflect further on.

Now, Georgieva called for the debt ceiling to be raised immediately or suspended, saying this is an avoidable risk for both the US and global economies. She says we're in the 12th hour right now. She drew an analogy to the fairy tale Cinderella and how Cinderella had to leave the ball by midnight. She says, we are there right now before our carriage turns into a pumpkin, can we please get this solved?

The IMF chief calling for a permanent solution to avoid this sort of brinksmanship in the future. Though, having said all that, the IMF does think that the US needs to deal with its debt situation. And they think that revenue raise could be part of that solution, suggesting that there should be consideration for a broad-based federal consumption tax, a carbon tax, as well as higher taxes on corporations and wealthy individuals. Guys.