IMF chief says US Fed must be sure of jobs, prices before raising rates

International Monetary Fund managing director Christine Lagarde said interest rates have to be justified by the job market and inflation.
International Monetary Fund managing director Christine Lagarde said interest rates have to be justified by the job market and inflation. PHOTO: AFP

ANKARA (Bloomberg) - The US Federal Reserve must be certain that the job market and inflation are strong enough to justify raising interest rates, the head of the International Monetary Fund said after a Group of 20 meeting focused on the pressure the increase may place on the global economy.

"The Fed has not raised interest rates in such a long time, that it should really do it for good, not give it a try and then have to come back," IMF managing director Christine Lagarde said at a press conference on Saturday

"The IMF thinks that it is better to make sure that data are absolutely confirmed, that there is no uncertainty, neither on the front of price stability nor on the employment and unemployment front, before it actually makes that move."

Traders are torn on when the Fed will raise interest rates, with Bill Gross of Janus Capital Management seeing an even chance that the Fed could raise or hold rates when it meets on Sept 16-17.

Investors scaled back expectations for the US's first rate increase since 2006 after a selloff in China became a global stock-market rout. The Fed's key interest rate has been frozen since 2008.

Fed officials explained their thinking on a possible rate increase during the G-20 meeting, Spanish Economy Minister Luis de Guindos said. "They made a series of comments about monetary policy with some factors that favor a rate increase and others that might push it back," he said.

Fed vice chairman Stanley Fischer gave a mixed review of the latest US jobs report in a briefing to G-20 officials, Luxembourg Finance Minister Pierre Gramegna said in a Bloomberg Television interview.

"He told us that the numbers in the US are excellent because unemployment went down from 5.3 to 5.1 per cent, which is an excellent number, but then he immediately cautioned that the number of 173,000 additional jobs was an August figure and that the August figure wasn't very reliable," Mr Gramegna said.

Emerging-market officials at the G-20 were divided on whether it's better for the Fed to tighten its policy this month or later on, saying that there were "both sentiments in the room," said the Luxembourg finance chief.

The gain in payrolls, while less than forecast, followed advances in July and June that were stronger than previously reported, the Labor Department said last Friday. The jobless rate was the lowest since April 2008.

The strength of the economy and the jobs market though has yet to lift inflation up to the Fed's 2 per cent target. Prices in the U.S. rose 0.3 per cent in the 12 months through July, measured by the Fed's preferred gauge. Inflation has lingered below the Fed's target for more than three years.