Achi news desk-
(Bloomberg) — The head of the US International Monetary Fund warned that the global economy is keeping a close eye on interest rates and industrial policies given the potential spillovers from the world’s largest economy and reserves.
“All eyes are on the United States,” Kristalina Georgieva said in an interview on Bloomberg Watch on Thursday.
The two biggest issues, he said, are “what’s going to happen with inflation and interest rates” and “how the United States is going to navigate this world of more intrusive government policies.”
The continued strength of the US dollar is “worrying” for other currencies, particularly the lack of clarity about how long that may last.
“That’s what I hear from countries,” said the leader of the fund, which has around 190 members. “How long will the Fed be stuck with higher interest rates?”
Georgieva was speaking on the sidelines of the IMF and World Bank spring meetings in Washington, where policymakers have been discussing the effects of Washington and Beijing’s policies and their geopolitical rivalry.
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Georgieva said the IMF is optimistic that the conditions will be right for the Federal Reserve to start cutting rates this year.
“The Fed is not yet ready, and rightly so, to cut,” he said. “How fast? I don’t think we should prepare for a rapid reduction in interest rates.”
The head of the IMF also reiterated her concerns about China devoting too much capital and labor to export-oriented manufacturing, causing other countries, including the United States, to retaliate with protectionist policies.
China Overcapacity
“If China builds overcapacity and pushes exports that create reciprocity, then we are in a world of more fragmentation not less, and ultimately that is not good for China,” Georgieva said.
“What I want to see China do is get serious about reforms, get serious about demand and consumption,” he added.
A number of countries have recently criticized China for what they see as excessive state subsidies to manufacturers, particularly in clean energy sectors, which could flood global markets with cheap goods and threaten competing companies.
US Treasury Secretary Janet Yellen hammered home the theme during a recent trip to China, repeatedly calling on Beijing to shift its economic policy towards stimulating domestic demand.
Chinese officials have acknowledged the risk of overcapacity in some areas, but have largely portrayed the criticism as overblown and hypocritical, coming from countries that are also increasing clean energy subsidies.
(Updates with additional Georgieva comments from the eighth paragraph.)
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