The International Monetary Fund released its report Thursday recommending that the U.S. Federal Reserve should push off a rate hike until the first half of 2016 when a strengthening in inflation and wages has stabilized. The IMF also cut its U.S. growth forecast for the second time this year.
Analysts at the U.S. central bank have also been pushing for a delay in rate hikes with U.S. data mixed and the economy shrinking 0.7 percent in the first quarter.
One IMF representative said that "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."
Fed governor, Daniel Tarullo, at a conference in New York Thursday pointed to disappointing consumer and business spending this year, raising questions about whether the U.S. has “lost momentum in the underlying performance in the economy.”
Lael Brainard, another Fed governor, voiced misgivings about the strength of the U.S. recovery and said “There is value to watchful waiting while additional data help clarify the economy’s underlying momentum.”
Yellen Firm
Fed chair Janet Yellen is adamant about keeping the economy on course and insists that a rate rise this year is inevitable. The IMF, however, is forecasting that the personal consumption expenditures (PCE) reading, its most favored inflation measurement, would reach the central bank's target of 2 percent 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.