The Federal Reserve should hold off from raising interest rates until the first half of 2016, the International Monetary Fund said as it cut its U.S. growth forecast for the second time in three months.
The lender also said that the dollar was “moderately overvalued” and a further marked appreciation would be “harmful,” in a statement released in Washington on Thursday on its annual checkup of the U.S. economy.
“The FOMC should remain data dependent and defer its first increase in policy rates until there are greater signs of wage or price inflation than are currently evident,” the IMF said. Based on the fund’s economic forecast, and “barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016.”
A stronger dollar, declining oil investment and a West Coast port strike in the first quarter will pull down U.S. growth to 2.5 percent this year, said the fund, which previously projected the world’s largest economy to expand by 3.1 percent in 2015. Economists surveyed by Bloomberg also expect U.S. growth of 2.5 percent this year.
Federal Reserve Chair Janet Yellen on May 22 said she still expects to increase interest rates this year if the economy meets her forecasts. The Fed, which hasn’t raised rates since 2006, will need to see continued improvement in labor market conditions and be “reasonably confident” that inflation will move back to 2 percent, she said.
Investors currently expect the Fed to move in December, according to bets placed in interest-rate futures markets.