The IMF Chief Economist should return to normal by the end of next year but warned of slowing growth and increasing economic inequality. 

Global inflation, which has suppressed risk assets like cryptocurrencies and tech stocks is set to fall to 3.5% by the end of 2025, thanks in large part to a resilient global economy, said the International Monetary Fund in its latest global outlook. 

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“The battle against inflation is almost won. After peaking at 9.4% year on year in the third quarter of 2022, we now project headline inflation will fall to 3.5% by the end of next year,” said IMF Chief Economist Pierre-Olivier Gourinchas in an Oct. 22 statement accompanying the IMF’s World Economic Outlook report. 

“In most countries, inflation is now hovering close to central bank targets. Now inflation came down while the global economy remained resilient. Growth is projected to hold steady at 3.2% in 2024 and 2025,” he added. 

Lowered inflation would provide a range of benefits, such as decreased cost of living and depressed interest rates, which could be a boon for risk assets like cryptocurrencies.  

However, Gourinchas noted that escalating geopolitical and trade tensions in the Middle East, combined with a looming Presidential election in the United States, still create considerable uncertainty. 

“These downside risks include an escalation in regional conflicts, especially in the Middle East, which could pose serious risks for commodity markets.”

Despite the inflation prediction, the IMF called for a “policy triple pivot” aimed at fixing interest rates, tackling government spending, and introducing key reforms to boost productivity. 

The report said a decline in inflation while avoiding a global recession should be seen as a “major achievement.” Still, it conceded that the growth outlook for the global economy was largely unchanged and remained at its “weakest level in decades.”

The IMF forecasted that the US is positioned to experience the fastest rate of growth, and strong expansions are also likely in emerging Asian economies due to robust artificial intelligence-related investments. 

The slowdown in inflation, after years of crushing price increases in the aftermath of the pandemic, led the Federal Reserve and the European Central Bank to cut interest rates this year after they had aggressively raised them to try to tame inflation.

“The battle against inflation is almost won,″ Pierre-Olivier Gourinchas, the IMF chief economist, told reporters Tuesday. ”In most countries, inflation is hovering close to central bank targets.″

However, the agency lowered its outlook for other advanced economies, including several large European countries and some emerging markets, blaming intensifying global conflicts and ongoing risks to commodity prices. 

“Projected slowdowns in the largest emerging market and developing economies imply a longer path to close the income gaps between poor and rich countries. Having growth stuck in low gear could also further exacerbate income inequality within economies,” the IMF warned.

Inflation may still get worse, says billionaire 

While economists are forecasting slowing inflation in the coming months, billionaire hedge fund manager Paul Tudor Jones says he expects the exact opposite. 

On Oct. 22, Jones said he was long Bitcoin, gold, and a basket of other commodities due to his growing concern with the amount of debt the US has accumulated over the last few years. 

The Congressional Budget Office estimates the federal government will clock a $1.9 trillion deficit in the 2024 fiscal year. That figure is on track to grow to $2.8 trillion by 2034, the CBO said.

“The playbook to get out of this is that you inflate your way out,” Jones said, pointing to Japan as an example of a country already pursuing this strategy.

“We’re going to be broke really quickly unless we get serious about dealing with our spending issues.”

The IMF, a 190-nation lending organization, works to promote economic growth and financial stability and reduce global poverty. On Tuesday, besides sketching a milder inflation outlook, it upgraded its economic expectations for the United States this year, while lowering its estimates for growth in Europe and China.

The IMF left its forecast for global growth unchanged at a relatively lackluster 3.2% for 2024.

The IMF expects the U.S. economy to expand 2.8% this year, down slightly from 2.9% in 2023 but an improvement on the 2.6% it had forecast for 2024 back in July.

Growth in the United States has been led by strong consumer spending, fueled by healthy gains in inflation-adjusted wages.