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IMF urges "bias" toward rate hikes as US economy improves
Published in Saudi Press Agency on 30 - 07 - 2008


The International Monetary Fund Wednesday
suggested the United States should sharply raise interest rates to
ward off inflation threats as the economy improves and turmoil in
financial markets begins to ease, according to dpa.
As the Federal Reserve prepares for its next rate-setting meeting
on Tuesday, the IMF warned that greater inflation expectations have
left monetary policymakers with a difficult balancing act.
Interest rates should remain on hold for the time being as growth
remains sluggish, but the Federal Reserve must keep a watchful eye on
rising commodity prices, the IMF said.
"Given the high cost of reversing such (inflation) expectations
once they become entrenched, most directors underscored that the bias
should be toward a decisive tightening once recovery is established
and financial conditions ease," the IMF said in an annual evaluation
by its executive board of directors.
The US central bank has slashed its benchmark federal funds rate
by 3.25 percentage points since September, but the Fed left rates
unchanged at its last meeting in June.
The IMF board recognized that "downside risks to growth still
remain large" and praised the US for implementing a series of
emergency lending programmes to help keep financial institutions
afloat.
The IMF welcomed an emergency plan by the US Treasury to shore up
the finances of mortgage giants Fannie Mae and Freddie Mac, which
together manage nearly half of the 12-trillion-dollar mortgage market
in the United States.


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