Poorly targeted fiscal policy could become “the enemy” of monetary policy in the fight against stubborn inflation, IMF Managing Director Kristalina Georgieva said Wednesday, adding to her previous calls for higher interest rates.
“Inflation is stubborn, it’s more broad based than we thought it would be,” Georgieva said while introducing a lecture by Banque de France chief Francois Villeroy de Galhau, and “we need central bankers to be as stubborn in fighting it as inflation demonstrably has been.” (See: MNI: IMF Sees 'Prominent' Global Recession Risk Next Year)
The IMF and others “were proven wrong” in believing inflation would fade away, she said, repeating the word wrong several times for emphasis. “If central banks do their job well, we may be swinging through next year with less pain,” she said. “If fiscal policy isn’t targeted sufficiently, then it may become the enemy of monetary policy, fueling inflation.” U.S. stocks tumbled Wednesday and bond yields have climbed on signs inflation will take longer for the Fed to bring down than previously thought.