IMF says Fed 'can hold off' on interest rate rise

SEP 3, 201511:27 PM

[WASHINGTON] The International Monetary Fund said Thursday that the Federal Reserve has the room to hold off from raising interest rates for the moment amid a "pretty bumpy" global economic situation.

"Our general view is that they have flexibility to hold off," said IMF spokesman William Murray, adding that the Fed "should proceed gradually" with its planned series of rate hikes.

Mr Murray, speaking to reporters, said the Fund expects the central banks in economies like the United States and Britain to begin raising rates eventually given the pickup in growth in their economies.

But he suggested there was still time to wait before taking the first step.

"The situation globally is pretty bumpy," he said, and the IMF view is that the Fed "should proceed gradually" with its plan to begin raising rates for the first time since 2006.

The Fed has held its benchmark federal funds rate at the zero level since 2008 to pull the economy back from the economic crisis.

Since last year it has been flagging a likely first rate hike sometime this year, with eyes now on the September 16-17 policy meeting for a possible move.

But Mr Murray pointed out that US inflation and wage pressures, two key barometers for a Fed decision, "remain muted".

That means the US central bank "can afford to hold interest rates low until there are more tangible signs of wage or price inflation than are currently evident."

When the Fed does move, Mr Murray stressed, its clear communication of policy intentions "is critical so that countries broadly around the world can adjust." The prospect of a slow series of rate rises in the United States has since two years ago stirred capital outflows from emerging economies and helped send their currencies tumbling.

AFP