WASHINGTON: The International Monetary Fund (IMF) on Thursday cut its 2015 growth forecast for the United States and called on the Federal Reserve to put off a rate hike until conditions are stronger.
In an annual report of the world’s largest economy, the Fund said growth would reach only 2.5 per cent this year due to the unexpected first quarter contraction, compared to the previous forecast of 3.1pc in April.
It said growth is already rebounding from the stall. But it nevertheless strongly recommended that the Fed hold off on its planned interest rate hike until more resilience is shown, likely only in early 2016.
It said growth momentum this year had been sapped by “a series of negative shocks”, pointing to extremely harsh winter weather in parts of the country, the three-month West Coast ports slowdown that locked up trade, the sharp rise of the dollar and the downturn in the oil industry.
Still, the IMF said, “These developments represent a temporary drag but not a long-lasting brake on growth.”
“A solid labour market, accommodative financial conditions, and cheaper oil should support a more dynamic path for the remainder of the year.”
IMF chief Christine Lagarde said at a press conference on the report that the Fund sees US growth resuming a 3pc pace over the rest of the year, and achieving that for the whole of 2016.
“We still believe that the underpinnings for continued expansion are in place.”
But she pushed for the Fed to hold off on a rate hike, which has been anticipated for as early as July, saying growth conditions are not yet firm enough for it.
The Fed has locked its benchmark federal funds rate at zero since 2008, and has been waiting for proof from a tightening jobs market and rising inflation that the economy is locked into higher gear to make its first increase toward a more “normal” monetary policy.
Without those signs, the IMF report warned, raising rates too soon could result in tighter financial conditions and even financial instability, that could then force the Fed to cut rates again.