Policy tightening

The IMF slightly lowered its forecasts for global GDP growth and US GDP pointed out that the current rise in inflation is causing "high uncertainty". The IMF called on central banks and the US Federal Reserve to be prepared to tighten policy if inflation gets out of hand.

The International Monetary Fund (IMF) this week published its updated growth forecast for the global economy and pointed to the potential need for central bank policy adjustments.

The IMF lowered (down from its July estimate) its forecast for global gross domestic product (GDP) growth in 2021 by 0.1% to 5.9%. The GDP growth forecast for the USA was lowered by 1% to 6% however, this is higher than the 5.2% forecast for all developed countries.

For next year, the IMF kept its global growth forecast at 4.9%.

Although the IMF agreed with the Fed and many economists' assessments that the current global price growth wave will eventually subside, it noted that there is "high uncertainty" about these forecasts.

The IMF report cites the US as well as the UK and other developed countries as places where "inflation risks are skewed upwards".

Earlier, Fed officials said the main weapon in the fight against inflation was raising interest rates. A dot plot of Open Market Committee members' forecasts from the September meeting showed that half of Fed policymakers predicted the first interest rate hike next year.

The IMF also noted the particular importance of transparent monetary policy outlook statements, which the Fed is trying to adhere to. The Fed is promising to voice its clear intentions to the public and name the criteria that the central bank will use to change policy.

The Fed pointed to problems in supply chains as one of the main causes of rising prices. JPMorgan Chase (JPM) CEO Jamie Dimon said on Monday that he expects supply chain problems to be resolved in 2022, followed by lower inflation. Investors will get more insight into current US inflation after Wednesday's government report, when the September consumer price index is released. Economists expect prices for a basket of ordinary consumer goods to rise by 0.3% for the month, bringing the year-on-year increase to 5.3%.

Today's inflation report will be very important for the market as traders will gauge the chances that the Fed will move to start cutting stimulus for the economy and raising rates sooner.