Well friends, in another episode of “Who the heck invited you?”, the IMF randomly took center stage today as they gave the Federal Reserve a nice little lecture out of the book of How to Piss Americans Off. 

(Source: Giphy) 

In short, the IMF (International Monetary Fund) took it upon themselves to tell the Fed that they should not cut interest rates until “late 2024”. Booooo!

(Source: Reuters) 

I know, I know… talk about spoiling the kool aid, especially since traders are pricing in a 100% chance of a rate cut at the Fed’s September meetings. But apparently, according to IMF chief economist Pierre-Olivier Gourchinas (geez say that three times fast), “The strong U.S. labor market means there’s no rush to make [rate cut] decisions”. Yeah, tell that to every millennial homebuyer in 2024. 

(Source: MakeAMeme) 

Obviously this goes against everything most investors have been hoping and expecting over the last few weeks. However, as if the rate cutting advice wasn’t enough, the IMF also felt the need to instruct the U.S. to go ahead and raise taxes (including on households earning less than $400,000 a year) to slow the growing federal debt. 

(Source: Reuters) 

Ummm I’m sorry, it’s not our fault the U.S. government couldn’t hold its weight in government spending. 

But despite my think so’s or feelings about it, what’s the logic here?

Well, it all boils down to a few economic fundamentals, that are about as fun as a root canal, but pretty dang important. As mentioned above, the Pierre guy isn’t necessarily wrong that the U.S. labor market is “historically” healthy to date. Sure people have jobs, with layoffs happening here and there… but still, recent data shows that the labor market might be weakening. 

(Source: Coindesk) 

For instance, jobless claims went up last week by 20,000 (for a total of 243,000 compared to 223,000 the previous week). Yet, even with that uptick in jobless claims, and not to mention, the cooling inflation from the last CPI readings, the IMF still thinks there’s less pressure for the Fed to cut rates anytime soon.

(Source: New York Times) 

Now what the Fed does with that, we won’t know until September. They have all the data, they know the labor market is still “technically” fine even with incremental increases in jobless numbers…

But the real “wtf” question is the tax issues. According to the IMF’s report, the U.S. public debt to GDP ratio is projected to hit 109.5% by 2029. Which is pretty much saying the same thing we already know, the Fed has maxed out its credit card and it’s somehow borrowed more. 

(Source: Giphy) 

So because of this, the IMF is saying we need to cut back on the expenses, and grow revenue. Now of course this makes sense in simple financial literacy terms, but when it comes to “growing revenue” for the government the translation is always this: Screw the citizens and make them pay more. 

(Source: Giphy) 

Which is why this advice lands right in the middle of a political minefield. President Biden's main promise to us Americans during his presidential tenure is that he wouldn't raise taxes on households earning less than $400,000, while the Don is all about keeping the tax cuts from his presidency. 

(Source: Washington Posts) 

And with a vital election coming up, I highly doubt the current administration will look to torch any popularity numbers it has by pounding the tax gavel.

But the rates? Well that’s another story. As traders are betting the farm that Jerome Powell will do us all a solid and cut rates - only time will tell if we get what we want in September. 

In the meantime though, it's simply a guessing game. The IMF is definitely in the Fed’s ear and regardless of what happens, it will be interesting to see what kind of a pull they end up having. So stay tuned... especially since the money printer may not go “burrr” after all. 

(Source: Giphy)