IMF Cuts US Growth Forecast and Warns on Rate Hike

The International Monetary Fund has cut its growth forecast for the US economy and warned the Federal Reserve to wait until next year before embarking on interest rate rises.

In its annual assessment of the world’s largest economy, known as an Article IV report, the IMF downgrades its GDP growth forecast for 2015 from 3.1% to 2.5%, amid what it calls “significant uncertainties as to the future resilience of economic growth”. It also shaves its forecast for 2016, from 3.1% to 3%.

There have been mounting fears about the strength of the US recovery in recent weeks after an unexpected decline in the first quarter, with GDP contracting at an annual rate of 0.7%.

The IMF says growth should pick up later in the year as the impact of temporary factors, including bad weather and the West Coast port strike, start to fade. “These developments represent a temporary drag but not a long-lasting brake on growth,” it says. “A solid labour market, accommodative financial conditions and cheaper oil should support a more dynamic path for the remainder of the year.”

The Fed has been planning to start raising interest rates in the coming months, as unemployment continues to fall and the economy recovers. But the IMF’s experts make what they call, “the case for a later liftoff”, suggesting that their analysis shows the first increase should not take place until the first half of next year.

“There is a strong case for waiting to raise rates until there are more tangible signs of wage or price inflation than are currently evident,” the IMF says.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza