The U.S. Federal Reserve should delay a rate hike until the first half of 2016 until there are signs of a pickup in wages and inflation, the International Monetary Fund said in its annual assessment of the economy on Thursday.
The fund’s report comes amid signs that some rate setters at the U.S. central bank are also pushing for rate hikes to be delayed until there are clearer signs of a sustained recovery. U.S. data has been mixed and the economy shrank 0.7 percent in the first quarter.
Fed chair Janet Yellen has insisted the economy remains on track and that a rate rise this year is on the cards, although others including Fed governor Lael Brainard, viewed as a centrist on the rate-setting committee, have raised concerns over growth.
The fund forecast that the Fed’s favored measure of inflation, the personal consumption expenditures (PCE) reading, would hit the central bank’s 2 percent target only in mid-2017.
The prolonged period of zero interest rates has prompted a hunt for yield in U.S. assets, although the IMF said that at present this had created “pockets of vulnerabilities” rather than “broad-based excesses”.
It warned that a migration of financial intermediation to non-banks which are more lightly regulated and the potential for insufficient liquidity in a range of fixed income markets could lead to “abrupt” moves in market pricing.
It called on all the agencies involved in the Financial Stability Oversight Committee, a grouping of regulators, the central bank and government agencies, to have specific financial stability mandates.