The International Monetary Fund (IMF) has warned that persistent inflation may result in interest rates remaining high for longer than anticipated, posing fiscal and financial risks globally.

The IMF’s latest World Economic Outlook highlights that high prices for services and increasing trade tensions are maintaining inflation and suggesting that interest rates will stay elevated.

This situation underscores the caution of central banks in cutting rates due to ongoing inflation concerns.

Federal Reserve Chair Jerome Powell indicated that more confidence is needed that inflation is sustainably moving toward the 2% target before the U.S. can consider its first rate cut.

Similarly, the Bank of England has maintained its rates, even though UK inflation hit the 2% target in May, due to higher-than-expected services inflation, CNN has reported.

The Bank of England stressed the need for a prolonged restrictive monetary policy to prevent inflation from becoming entrenched above the target.

The IMF still expects major central banks to reduce borrowing costs in the latter half of the year, predicting one cut by the Fed before year-end.

Written by B.C. Begley