IMF Calls Fed’s Bluff: Delay Rate Hike Until 2016

Last week, International Monetary Fund Managing Director Christine Lagarde said that the Federal Reserve should delay any interest rate hikes until 2016.

Higher US policy rates could still result in significant market volatility with financial stability consequences that go well beyond the US borders. In weighing these risks, we think that there is a case for waiting to raise rates until there are more tangible signs of wage or price inflation than are currently evident. In other words, we think a rate hike would be better off in early 2016.”

Lagarde seems to be saying what contrarian analysts like Peter Schiff have been saying for months: the Fed cannot afford to raise rates this year. Why? Lagarde takes the Keynesian viewpoint that inflation isn’t high enough. The truth is that a rate hike would devastate an economy that has grown dependent on cheap money and interest-rate manipulation.

And if the US economy staggers, the repercussions could be felt around the world. According to Bloomberg, the IMF “also said that the dollar was ‘moderately overvalued’ and a further market appreciation would be ‘harmful.’”

The IMF is basically telling the Fed too keep the US economy jacked into a monetary IV.

Bloomberg analysts had a spirited debate about the news. Some tried to write it off, saying the IMF should keep its nose out of the Fed’s business.

On the other hand, Stephanie Rule pointed out what Peter Schiff has been saying for years: “This shows just how fragile the underpinnings of this QE-based global economy are… Does [Lagarde] just want to put a big band-aide on this, because she doesn’t want to face a disaster on her watch?”

Yes, that’s exactly what Lagarde wants. And the chances are that the “data dependent” Fed will find a reason to do as she recommends. After all, interest rates have stayed near zero for almost seven years. So another year or two can’t hurt, right? For central bankers, the game is now to push the crash onto the shoulders of the next generation of policymakers.

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