IMF: Fed's QE Tapering Might Spark 'Adverse Global Implications'

Friday, 26 Jul 2013 10:54 AM

 

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink

The International Monetary Fund cautioned that the U.S. Federal Reserve’s exit from unprecedented asset purchases could spur market reactions causing “excessive” interest-rate volatility.

That would have “adverse global implications,” the fund’s board of directors said in a statement, part of an annual review of the world’s largest economy. “Effective communication on the exit strategy and a careful calibration of its timing will be critical for reducing these risks,” the Washington- based fund said.

The IMF left its U.S. growth forecast for this year unchanged at 1.7 percent, saying the housing and labor markets are improving even as the Fed’s decision looms and fiscal policy remains a drag on growth. The fund projected 2014 growth of 2.7 percent, also unchanged from a report earlier this month.

The Fed is considering reducing its $85 billion in monthly bond purchases even with unemployment at 7.6 percent and the Fed’s preferred inflation index showing prices rising 1 percent from a year earlier, below the central bank’s 2 percent goal. The Fed’s policy-making committee next meets July 30-31.

The Fed has said economic data will determine the timing and pace of any reduction in monthly bond-buying, known as quantitative easing. The central bank may start trimming purchases in September, according to a Bloomberg survey of economists.

‘Essential Support’

While accommodative policy “continues to provide essential support to the recovery,” the IMF board said, “its financial stability implications should be carefully assessed” because a long period of extremely low interest rates could have unintended consequences for financial stability and complicates macro-policy in some emerging markets. The Fed has kept the main interest rate close to zero since December 2008.

The IMF also warned that “fiscal deficit reduction in 2013 is excessively rapid,” and that automatic spending cuts, called sequestration, could lower medium-term potential growth.

The board welcomed improvement in the U.S. housing and labor markets, and “agreed that the rebound of the housing market has benefited from monetary policy actions” and government-backed programs promoting refinancing and loan modification. The fund also “saw room for policies that continue to support the housing market,” the statement said.

© Copyright 2014 Bloomberg News. All rights reserved.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web
Join the Newsmax Community
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Retype Email:
Country
Zip Code:
 
You May Also Like
Around the Web
Most Commented

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved