WASHINGTON—The Federal Reserve risks stalling the U.S. economy
by raising interest rates too early, the International Monetary
Fund warned Tuesday as it detailed further its call for the central
bank to delay a move until 2016.
The IMF's push for a delayed rate increase is at odds with the
current signals Fed officials are sending for a move later in 2015.
Last week's job numbers bolstered the Fed's plans to increase
short-term rates in the months ahead.
The IMF, which cut its growth forecast for the U.S. last month,
said the Fed could be forced to reverse course next year if the
central bank proves overly optimistic about the health of the
American economy. IMF staff argue that, barring upside surprises,
there is still too much uncertainty around inflation, employment
and wage prospects for the Fed to pull the trigger in coming
months.
"Raising rates too early could trigger a greater-than-expected
tightening of financial conditions due to some combination of a
further upward swing in the U.S. dollar, lower equity prices,
and/or a repricing of risk premia and the yield curve," the IMF
said in its detailed annual analysis of the U.S. economy.
"There is a risk that the tightening impact on the economy could
go well beyond the initial [0.25 percentage point] increase in the
fed-funds rate, creating a risk that the economy stalls," fund
staff said.
A policy U-turn wouldn't be without precedent. Both the European
Central Bank and Sweden's Riksbank were forced into rate reversals
in 2011, and the Bank of Japan seesawed through rate moves in the
1990s and 2000, fund economists noted.
Such an about-face puts the Fed's all-important credibility at
stake, the IMF said.
The emergency lender also said the crises in Greece and Ukraine
represent "unpredictable wild card" risks to the U.S. economy. So
far, the impact in U.S. markets from the Greek crisis has been
limited. The country has little direct exposure. But if it
deteriorates further, it could hit broader European growth, which
could weigh on the U.S. recovery.
Weaker global growth or a faster slowdown in China could also
hit the U.S., sparking a selloff in equity markets, the IMF
said.
Write to Ian Talley at ian.talley@wsj.com
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