IMF cuts US growth outlook

June 22: The International Monetary Fund (IMF) cut its forecast for US growth this year, urging the Federal Reserve to lean towards modestly overshooting its inflation target in considering whether the economy can handle higher interest rates.

The IMF said the US economy will grow 2.2% this year, less than its projection of 2.4% in April. The fund left unchanged its forecast for a 2.5% expansion in 2017.

There’s a clear case for the Fed to proceed on a “very gradual” path in raising its benchmark rate, the IMF said in a statement on Wednesday after concluding its annual assessment of the world’s biggest economy.

“The path for policy rates should accept some modest, temporary overshooting of the Fed’s inflation goal to allow inflation to approach the Fed’s 2% medium-term target from above,” the fund said.

A dovish tilt will ensure against the risk of disinflation and the possibility the central bank may have to reverse course and lower rates to zero, the IMF added.

The Fed last week signalled it would raise rates more gradually than anticipated amid concerns about slow job gains and the potential exit of the UK from the European Union.

The Fed left its target range for the benchmark federal funds rate unchanged at 0.25% to 0.5%. Bloomberg