IMF urges Fed not to raise interest rates until 2016

Jun 04, 2015, 4:22 PM EDT
IMF Managing Director Christine Lagarde speaks about the state of the US, Greek and global economy during a press conference at IMF Headquarters in Washington, DC, June 4, 2015.
SAUL LOEB/AFP/Getty Images

On Thursday the IMF urged the Fed not to raise interest rates until 2016. 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, according to Reuters. 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.

While hiring has picked up, pay has not, notes CNN Money. Wages only grew by 2.2% in April compared to year ago, well below the Fed's goal for 3.5% growth. And 6.6 million Americans are working part-time jobs but want full-time jobs -- much higher than the pre-recession level. America's economy contracted in the first quarter this year, leading the IMF to believe that the first few months of 2015 will drag down growth for the year.

The fund’s latest U.S. monetary-policy advice is among its most explicit on record, writes Bloomberg. In 2012, for instance, IMF staff suggested that further easing might be warranted if the outlook worsened, while in the crisis of 2008 they said rates “should stay on hold” until a recovery is established. “The IMF is making a pronouncement on the Fed because the U.S. economy is still so important to the globe,” said Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, who expects a September rate increase. “The question is: Will the Fed listen and does it have any bearing on monetary policy decision-making? And my guess is no.” The strengthening dollar and global disinflationary trends will probably weaken inflation pressures, according to the IMF.