IMF Warns America, Other Large Economies, against Raising Interest Rates Too Soon

After months of hinting at interest rate hikes, many Americans consider the prospect of an increase in the prime rate a certainty. However, the International Monetary Fund (IMF) has warned the world’s largest economies, including the United States, against raising interest rates too soon. According to the IMF, too many risks to global growth remain, and more advanced economies should continue to pursue “growth supportive policies.”

After months of hinting at interest rate hikes, many Americans consider the prospect of an increase in the prime rate a certainty. However, the International Monetary Fund (IMF) has warned the world’s largest economies, including the United States, against raising interest rates too soon. According to the IMF, too many risks to global growth remain, and more advanced economies should continue to pursue “growth supportive policies.”

The IMF’s warning came in a letter to central bankers and finance ministers of the G-20, a group of leading economies. The G-20 has been meeting in Turkey this week. According to the letter, higher interest rates would likely damage the already fragile recovery many nations’ economies have been experiencing following the global recession of 2008.

“Monetary policy must stay accommodative to prevent real interest rates from rising prematurely,” the IMF said in its letter to the G-20, according to a report by CNN Money.

As of now, the nations of the world appear to be heeding the warning. The European Central Bank kept interest rates at record lows following its meeting on Thursday, though this turn of events was largely expected. Overall, the global economy has been in a slowdown over the last two quarters, with lower demand from China and weak commodities prices dragging down growth in many nations. Thus far, according to IMF data, the global growth rate for the first half of 2015 was slower than the second half of 2014.

The next big question mark on national rate hikes comes down to the United States. The US Federal Reserve has strongly hinted at its intention to raise interest rates later this month. However, the stock market crash in China and the current degree of market volatility, coupled with the IMF’s suggestion, has caused many analysts to predict that the Fed will suspend any plans to increase rates until a later date. Of course, the Fed has acted unpredictably before, and history shows that suggestions by outside groups, even the IMF, have little influence on the Federal Reserve’s decisions.

Many economists believe the results of Friday’s US jobs report may well serve as the deciding factor in the Fed’s determination on interest rates. If the Fed does raise interest rates later this month, it would be the first official rate increase in almost a decade. According to the IMF, it believes the US should keep interest rates at these historic lows until at least 2016.