• US stock market daily report (June 04, 2015, Thursday)

    Christine Lagarde, managing director of the International Monetary Fund (IMF) said Thursday at a press conference, that the United States Federal Reserve should wait for “more tangible signs” of wage or price inflation than are currently evident, to raise interest rates. The comments were made during the IMFs annual review of the U.S. economy.

    Lagarde said, “We think a rate hike would be better off in 2016.” She said that inflation won’t reach the Fed’s 2% annual inflation target until mid-2017.

    U.S. Federal Reserve Chairman Janet Yellen along with 15 out of 17 Federal Reserve officials said they plan to lift interest rates in 2015. Yellen had previously said that waiting too long risks overheating the U.S. economy.

    Needless to say, IMF comments clash with the current thinking of officials at the U.S. central bank.

    The IMF said starting too to raise interest rates too early raises the risk of having to retreat back to zero. Lagarde said that raising rates too early could create a bigger risk than an outbreak of inflation from waiting too long. The U.S. economy is still too fragile and there are “pockets” of financial stability risks that are dangerous, she added.

    It is not a good idea for the U.S. Central Bank to use monetary policy to dampen speculation, Lagarde said. The U.S. instead should work to strengthen financial regulation. There is a risk that further appreciation of the dollar would be harmful, with the dollar moderately overvalued, per the IMF.

    Per the IMF, fundamentals for continued growth and job creation remain in place for the U.S. economy. Momentum however, has been slowed in recent months, by a series of negative shocks. A warning from the IMF is that the first rate hike by the Fed, could rattle the financial markets and lead to instability, despite being carefully prepared and telegraphed.

    Contributed by Millennium Traders
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