IMF’s chief endorses Fed move to keep stimulus in place

Wants to see stability

International Monetary Fund chief Christine Lagarde on Thursday praised the Federal Reserve’s decision this week not to tap the brakes on its bond-buying program to stimulate the U.S. economy, saying it was still too soon to start the widely expected “tapering” operation on the Fed program.

“The IMF has always said that it should be gradual, that it should be based on data, with a clear indication of what the criteria would be,” Ms. Lagarde told reporters after giving a speech to the U.S. Chamber of Commerce in Washington. “So clearly the decision that was communicated [Wednesday] and the various comments made by the chairman show that it’s exactly what we at the fund have advocated.”

In a move that took global markets by surprise, Fed Chairman Ben S. Bernanke said the U.S. central bank’s board concluded almost unanimously Wednesday that the U.S. economy was still too fragile and the jobless rate too high to end the loose-money policy.

Ms. Lagarde said ending those policies “should be linked to progress in the recovery and employment.”

Speaking to the business lobby ahead of next month’s annual meetings in Washington of the IMF and World Bank, Ms. Lagarde said U.S. officials should focus on fixing the country’s public finances, address political uncertainty about the budget and the federal debt ceiling, and finish reforming the financial sector.

“The ultimate goal is clear — to have a financial system that is less prone to instability and better able to serve the real economy,” she said.

She said U.S. economic growth this year, expected to be below 2 percent, is weaker than the IMF wants to see, adding that the heavy federal budget cuts were the main reasons for weak growth this year.

“The fundamentals of the U.S. economy have been improving gradually,” she said. “Households are in better shape. They have lowered their debt and have benefited from the recovery in the house prices and in the strong performance of the stock markets.”

But even with that acceleration and signs that Europe is emerging from its long recession, she said the IMF sees subdued global growth ahead.

Advanced economies are in a better place than they were six months ago. But developing countries that helped keep the global economy afloat during the economic crisis are now slowing down, the IMF chief said.

While the unemployment rate in the U.S. has dropped to 7.3 percent from a high of 10.1 percent early in 2009, employment still remains below the precrisis levels. Ms. Lagarde said job creation is a key ingredient in economic recovery, and that issue still needs to be confronted by the U.S. officials.

Ms. Lagarde also called for better policy coordination among the world’s major industrial powers.

“If the world’s five major economies were to work together to adopt a more rigorous, more comprehensive and more compatible set of policies, it would increase global GDP by about 3 percent,” she said. “We all have a stake in these interconnections. What happens elsewhere in the world … matters increasingly for the United States.”

This article is based in part on wire service reports.

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