IMF throws Fed under the bus - wait until 2016

IMF head Christine Lagarde made the unusual public statement that the Fed should delay any increase in interest rates until 2016. Her comment was based on the low US inflation rate and the uncertainty about the resilience of US economic growth. This is just after Fed Chairman Yellen suggested last week that a Fed increase was likely this year. The IMF also lowered its forecast for the US to 2.5 percent from 3.1 percent. It has also lowered its global growth forecast. The IMF is worried and thinks the Fed should be too.

This places the Fed in a tight position. If it raises rates and there is a problem, it looks like it did not heed this learned advice. If there is a contagion to the rest of  the world from a U.S. rate rise, it will look like the Fed is responsible for the economic problems in the rest of the world. What the IMF is saying is that the rest of the world needs dollars and needs the U.S. as the driver for economic growth.  The IMF view is that the Fed is being too cavalier about normalizing rates and that six years after a the financial crisis caution is needed with raising rates even 25 bps. It is question of how sensitive the global economic is to such a change.

Chairman Yellen, you are on notice. You need to slow down with making any hasty decisions.