IMF Reiterates Call to Federal Reserve to Delay Interest Rate Hike

Updated on

The International Monetary Fund (IMF) reiterated its request to the Federal Reserve to delay raising interest rates until next year. According to the international creditor, the central bank should wait until it sees “greater signs of wage or price inflation.”

The international creditor first made its appeal to the central bank regarding the matter last month.

“The U.S. Federal Reserve’s first interest rate increase in almost nine years has been carefully prepared and announced. Nonetheless, regardless of the timing, higher U.S. policy rates could still result in significant market volatility and financial stability consequences that go well beyond U.S. borders,” according to the IMF.

According to the IMF, the Federal Reserve should keep the existing short-term borrowing rate at 0 to 0.25% until the first half of next year, with a gradual increase after that.

The IMF issued its warning one day prior to the release of the minutes of the meeting of the Federal Open Markets Committee (FOMC).

IMF –  U.S. economic outlook

In the first quarter, several factors derailed the momentum of the U.S. economy, according to the latest report released by the IMF. These factors include the unfavorable weather, a sharp contraction in oil sector investment, and the West Coast port strike.

Despite experiencing a weaker first quarter, The IMF projected that the U.S. economy would grow 2.5%. The international creditor also emphasized, “Barring any negative shocks, the U.S. economy should be able to bounce back to 3% by 2016.

According to the IMF, a sustained growth over the next two years should allow the return of output to its potential by the end of 2017.

IMF – Risks to sustained growth

The IMF pointed out that the U.S. economic outlook remained broadly balanced, but there are several uncertainties ahead.
The international creditor noted that the stronger dollar was affecting the U.S. growth, job creation, and inflation. The IMF saif concerns will arise if the U.S. dollar appreciates substantially.

The IMF added that the housing recovery hasn’t reached a solid footing given the fact that the demand for housing is still weak. However, the international creditor believed that there is a potential for pent-up demand particularly from millennials as household income rise and job prospects become more secure.

Furthermore, the IMF said a continued weakening of economic growth in the rest of the world could suppress U.S. exports and investment in tradable sectors.

Leave a Comment