A fresh wave of tariffs could revive inflation and pressure central banks to keep their key interest rates high, the International Monetary Fund warned Tuesday. In its latest report on the outlook for the global economy, the Fund said borrowing costs could also be pushed higher by a series of elections that may lead to a surge in already high levels of government borrowing. The Fund left its forecast for world economic growth this year unchanged at 3.2%, and raised its forecast for next year to 3.3% from 3.2%.
It slightly lowered its growth forecast for the U.S. this year, and slightly raised its forecast for the eurozone. The Fund said that inflation rates are likely to continue to fall around the world, but are declining at a slower pace than had been expected as prices of services and wages continue to increase rapidly.
However, it warned that a fresh round of tariffs and other barriers to trade could push inflation rates higher, forcing central banks to maintain their key rates at currently high levels. “Upside risks to inflation have thus increased, raising the prospect of higher-for-even-longer interest rates, in the context of escalating trade tensions and increased policy uncertainty," the IMF said. Donald Trump has proposed a 10% tariff on all U.S.
goods imports and a 60% tariff on imports from China as part of his campaign to regain the White House. Many economists believe that would push U.S. inflation higher in 2025, and investors who share that concern have been responding through a series of market positions known as the Trump trade.
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