International Monetary Fund says ready to help Greece if asked to do so

The IMF’s push for a delayed rate increase is at odds with the current signals Fed officials are sending for a move later in 2015.

The International Monetary Fund said it expects the USA economy to bounce back from the first quarter when it shrank by 0.2 per cent, as this was due to bad weather, plummeting oil sector investment and a strike in one of its busiest ports. However, potential growth – at around 2%- is expected to be considerably weaker than pre-crisis levels unless a broad range of structural weaknesses are tackled to raise productivity, create incentives for innovation and capital formation, and boost labor force participation, the report said.

“There is a strong case for waiting to raise rates until there are more tangible signs of wage or price inflation than are now evident”, the group said.

The Fund warned against a repeat of “down-to-the-wire brinkmanship” in negotiations over fiscal policy and the debt ceiling later this year, saying this could damage confidence – particularly if the timing coincided with a Fed rate rise.

The fund’s warning comes as lawmakers and policy makers prepare to mark the fifth anniversary of the 2010 law, which was designed to insulate the financial system against a repeat of the 2008 crisis. Despite a slowdown in growth during the first few months of 2015, the US economy is strengthening and there are steady gains in job creation.

A premature rate increase could also spark an unexpected rise in long-term rates or a fall in stock markets, the fund said. But all the while, she has maintained that the Fed will be absorbing all incoming economic data to inform its decision, and is not on a preset course when it comes to rates.

“The importance of the initial increase should not be overstated”, Ms. Yellen told reporters in mid-June.

A policy U-turn wouldn’t be without precedent.

Such a move would transfer the responsibility for Greece to the Europeans. However, Ghosh said there could be unexpected developments such as a possible default by Puerto Rico where U.S. debt funds have invested around $75 billion, which could have an impact on global and Indian growth. The country has little direct exposure.

“An important risk to growth is a further U.S. dollar appreciation”.

Washington: Further gains in the dollar could leave USA growth “significantly debilitated” and have repercussions across emerging markets, the worldwide Monetary Fund has warned.