Fed should delay rate hike until wages, inflation pick up: IMF
The U.S. Federal Reserve should delay a rate hike until the first half of 2016 until there are signs of a pickup in wages and inflation, the International Monetary Fund said in its annual assessment of the economy on Thursday.
The fund’s report comes amid signs that some rate setters at the U.S. central bank are also pushing for rate hikes to be delayed until there are clearer signs of a sustained recovery. U.S. data has been mixed and the economy shrank 0.7 percent in the first quarter.
“Based on the mission’s macroeconomic forecast, and barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016,” the fund said.
Fed chair Janet Yellen has insisted the economy remains on track and that a rate rise this year is on the cards, although others including Fed governor Lael Brainard, viewed as a centrist on the rate-setting committee, have raised concerns over growth.
The fund forecast that the Fed’s favored measure of inflation, the personal consumption expenditures (PCE) reading, would hit the central bank’s 2 percent target only in mid-2017.
“A later lift-off could imply a faster pace of rate increases following lift-off and may create a modest overshooting of inflation above the Fed’s medium-term goal (perhaps up toward 2.5 percent),” the Fund said.
“However, deferring rate increases would provide valuable insurance against the risk of disinflation, policy reversal, and ending back at zero policy rates.”
