Who could have seen that coming? The IMF has slashed US growth expectations for 2014 from 2.8% to 2.0% (with 2015 hockey-sticking back to 3.0%). The IMF also warned the Fed should be "mindful of financial stability," but that is not the most surprising aspect of the IMF's mea culpa as they plunge head first into policy decisions...
- *IMF RECOMMENDS RAISING U.S. MINIMUM WAGE
- *IMF RECOMMENDS ADDITIONAL U.S. INVESTMENT IN INFRASTRUCTURE
- *IMF RECOMMENDS LIMITING OR ENDING ITEMIZED TAX DEDUCTIONS
And then there's this...
- *LAGARDE SAYS IMF'S CUT IN U.S. OUTLOOK TIED TO 1Q WEATHER
As Bloomberg reports,
The International Monetary Fund cut its growth forecast for the U.S. economy this year and said the Federal Reserve may have scope to keep interest rates at zero for longer than investors expect.
The Washington-based IMF now sees the world’s largest economy growing 2 percent this year, down from an April estimate of 2.8 percent. The IMF left a 2015 prediction unchanged at 3 percent, and said it doesn’t expect the U.S. to see full employment until the end of 2017, amid low inflation.
For the Fed, the forecast means “policy rates could afford to stay at zero for longer than the mid-2015 date currently foreseen by markets,” the fund said in its annual assessment of the U.S. economy.
Then they piled into policy...
They urged the U.S. to raise the minimum wage, invest in infrastructure and overhaul immigration policies to boost potential growth as it slips below the long-term average.
The IMF also urged the implementation of more proactive labor market policies, which included strengthening the Earned Income Tax Credit and increasing the minimum wage to align more closely with U.S. historical levels and international standards.
“This would help raise incomes for millions of working poor and would have strong complementarities with the suggested improvements in the EITC,” said the report.
And worries about bubbles and fragility...
The Fed has to contend with “multiple areas of uncertainty,” making the outlook for its policy “particularly uncertain,” according to the IMF. That is “in contrast to the narrow range of market views on the path for future policy rates as well as the current historically low pricing of asset price volatility.”
Even if the Fed communicates well its planned increase in interest rates, there’s still a risk for “significant swings in market flows and prices” in coming months, including beyond U.S. borders, the IMF said.
Finally, and perhaps most worrying for the bond bears is the new terminal rate low growth new normal appears to be confirmed...
The IMF also said it foresees longer-run potential growth averaging around 2 percent for the next several years, below historical averages and less than last year’s estimate. A year ago, the IMF projected potential growth rates at 2.3 percent in 2015-2016 and 2.4 percent in 2017-2018.
One wonders, rhetorically of course, if the IMF also pulled a "Polish Central Bank" and suggested that the US fire all Republicans in return for this suggestion; and we wonder how El-Nino is "priced-in" to this forecast.