IMF Chief Says U.S. Downturn May Be Necessary to Beat Inflation

The risk of an economic downturn in the U.S. is increasing, according to International Monetary Fund Managing Director Kristalina Georgieva, though it would be a “necessary price to pay” to tamp down inflation.

Georgieva’s remarks come as the IMF cuts its U.S. growth forecast to 2.9%. It had forecasted growth of 3.7% in April.

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Though the U.S. rebounded well from the pandemic downturn, rising prices have been "unwelcome side effects," Georgieva said.

In the middle of June, the Federal Reserve implemented the biggest increase in its benchmark lending rate in nearly 30 years, attempting to get a handle on rising prices for gasoline, food, and housing, among other commodities.

Georgieva said the IMF is confident the Fed's rate hikes will bring down inflation, but she is “conscious that there is a narrowing path to avoiding a recession."

Growth in 2023 is expected to slow to 1.7%, but "narrowly avoid" a recession, according to the Article IV consultation, an annual review of the U.S. economy.

Despite the impact a U.S. slowdown might have on the global economy, Georgieva said beating inflation must be the "top priority."