IMF: Fed should delay rate hike until early 2016

The International Monetary Fund (IMF) on Thursday recommended that the Federal Reserve delay raising interest rates until early next year.

The IMF made the recommendation in an annual review.

“What we are seeing in the data, particularly on inflation, is that the pickup is very slow and we believe that there is a good argument to actually defer until early 2016 any rate hike in order to err on the side of having potentially a little bit more inflation than 2 percent,” explained IMF Managing Director Christine Lagarde in an interview with Fox Business Network that will air Friday.

At the same time, Lagarde added that the U.S. wouldn’t want “the risk of disinflation and having to then lower the rates when they have just been hiked.”

{mosads}“That’s one policy area where we have a clear sense that we would be better off in early 2016 than in the course of 2015 with a rate hike,” she added.

Federal Reserve Chairwoman Janet Yellen recently said the central bank will likely raise interest rates by the end of the year if the economy continues to improve.

But Yellen added, “We are not there yet.”

The first quarter of 2015, Lagarde said, was a “bad quarter” possibly because of inclement weather, lower investment in the energy sector and port worker strikes.

Lagarde predicted economic growth could expand but that the average won’t be much better for the entire year.

“We believe that going forward the coming quarters will likely be at an annualized rate of 3 percent, but for the whole year we believe that 2.5 percent is a much more sensible forecast than we had.”

Yellen made clear inflation and continued growth in the labor market are both necessary before the Fed decides to raise rates.