Wall Street Journal (06/04/15) Ian Talley
The International Monetary Fund has reduced its forecasts for U.S. economic growth to 2.5% for the year from 3.1% forecast in April, after a strong dollar and bad weather stalled job creation and expansion. IMF also has called on the U.S. Federal Reserve to delay until 2016 its first short-term interest rate increase in nearly 10 years. Data show that long-term unemployment and high levels of part-time work signal slack in the labor market, and wage data indicates only slight growth. Meanwhile, the U.S. dollar has surged against other currencies, with the IMF noting it is “moderately overvalued.”
“[Given the] significant uncertainty around inflation prospects, the degree of slack, and the neutral policy rate, there is a strong case for waiting to raise rates until there are more tangible signs of wage or price inflation,” said IMF. The call for a delay, however, comes at a time when critics have grown concerned about the risks building in the financial system, particularly in the insurance and money markets.