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market | IST

Gita Gopinath: US Fed action unlikely to disrupt markets; inflation a worry

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Gita Gopinath, the chief economist and soon to be first deputy managing director of the IMF, in an interview with CNBC-TV18, has said that the US Fed signalling 3 rate hikes in 2022 will not have a major impact on global markets but inflation remains a concern, especially for emerging economies.

The US Federal Reserve on Wednesday has said that it is ending its pandemic-era bond purchases in March and will go for three quarter-percentage-point interest rate hikes by the end of 2022. Weighing in on the move, the chief economist and soon to be first deputy managing director of the International Monetary Fund, Gita Gopinath, has said that the communication from the US Federal Reserve is strong and clear.
“The expectation is that, as long as communication from the Fed remains strong and clear, and any kind of policy shifts are well telegraphed, that we will not see major disruptions in financial markets,” she said.
Gopinath believes that all central banks are batting for growth but inflation will remain a headwind as she expects supply chain disruptions till mid-2022.


"So typically what happens when interest rates start going up by major central banks, then that dampens the flow of funds to emerging and developing economies," she elaborated.
A silver lining is that global demand seems to have recovered from the clutches of the pandemic.
She said, " We have to recognise the global economy has recovered from the deep recession that was there in 2020. So, in that sense, it is positive news that global demand is in a fairly good place. That helps countries especially those that are major exporters around the world, but countries that rely on easy access to international finance, that do a lot of dollar borrowing, that have large amounts of debt, these can pose headwinds for their recovery."
Gopinath urged for a faster pace of vaccination to fight the Omicron COVID-19 variant threat.
For a ball-by-ball commentary on how the markets are faring today (Dec 16), please click here