IMF: Fed Could Keep Rates at Zero for Longer

The Federal Reserve may have scope to keep interest rates at zero for longer than investors anticipate as inflation stays muted and a 2014 slowdown prolongs the labor-market recovery, the International Monetary Fund said.

The IMF cut its U.S. growth forecast for this year to 1.7 percent from 2 percent predicted in June, citing a first-quarter contraction, after a 1.9 percent advance last year. The fund left its 2015 forecast at 3 percent, the fastest expansion since 2005.  “Even with that relatively good growth outlook, we still see there’s a lot of slack in the economy,” Nigel Chalk, deputy director of the IMF’s western hemisphere department, said today on a conference call.

The nation’s jobless rate fell to 6.1 percent in June, down from 6.6 percent in January, even as harsh winter weather contributed to a 2.9 percent contraction in gross domestic product from January through March. While the job market is weaker than the unemployment rate implies, there’s “meaningful rebound” under way, the staff report said.

Bloomberg

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