IMF urges US Federal Reserve to delay rate hike

The International Monetary Fund (IMF) has urged the US Federal Reserve to delay any interest rate hike until 2016.

It said in its annual assessment of the economy today (May 4th) that US monetary authorities should wait for signs of a pickup in wages and inflation, adding that "pockets of vulnerability" in the US economy have emerged that could cause serious trouble for the wider economy.

"Based on the mission's macroeconomic forecast, and barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016," the fund said.

IMF managing director Christine Lagarde said that a gradual rise in the US benchmark federal funds rate would be appropriate, while higher rates could cause market volatility.

Rate hike is still on the cards for 2015

Many analysts have predicted an interest rate rise this year, despite recent data showing that the US economy shrank an annualised 0.7 per cent in the first quarter.

The announcement comes a few days after Federal Reserve Chairwoman Janet Yellen warned that a rate hike is still on​ the cards for 2015. She said that if the US economy continues to strengthen, “it will be appropriate at some point this year to take the initial step to raise the federal funds rate”.

However, she added: "After we begin raising the federal funds rate, I anticipate that the pace of normalisation is likely to be gradual. The various headwinds that are still restraining the economy, as I said, will likely take some time to fully abate, and the pace of that improvement is highly uncertain. We have no intention of embarking on a pre-set course of increases in the federal funds rate after the initial increase."

Interest rates have been kept to near zero since the financial crisis that began in 2007, as part of a set of measures taken by the Federal Reserve to help stabilise the US economy and financial system. 

These low interest rates help households and businesses finance new spending and help support the prices of many other assets, such as stocks and houses.