From The Financial Times

James Politi and Sam Fleming in Washington

February 11, 2019

The IMF’s new chief economist has backed the Federal Reserve’s decision to shelve interest rate increases, citing “weakening momentum” and “considerable and rising” risks to the global outlook.

Gita Gopinath, who took over as the IMF’s top economist at the beginning of the year, flagged up a darkening picture in the euro area and China, as she warned there may have been a contraction in world trade in December.

But Ms Gopinath said the Fed’s “pivot” towards putting “tightening on hold” would have a positive impact on the US, the world’s largest economy, which is already being helped by the remaining influence of a fiscal stimulus package.

“The fact that the Fed has put a pause on raising rates is going to provide a lot of support to the economy,” Ms Gopinath said in an interview with the Financial Times. “We endorse the Fed view of having a data-driven approach.”

The Fed last month ditched its guidance signalling further increases in short-term interest rates as it responded to “cross-currents”, including decelerating growth in China and Europe and elevated uncertainty around trade policies. Other institutions including the central banks of India, Australia and the UK have also turned more dovish.

Ms Gopinath said the shift in Fed policy had also “certainly helped” emerging market economies that had struggled with the tightening financial conditions over the past year. “Emerging market currencies depreciated a fair bit in 2018, and capital flows had really weakened. We are seeing some respite from both.”

Despite the breathing room provided by the US central bank, Ms Gopinath, a 47-year-old economics professor who arrived at the IMF from Harvard University, stressed lingering concerns about the outlook. Last month, the IMF estimated that the world economy would grow at a rate of 3.5 per cent this year, 0.2 percentage points less than it forecast in October. Some of the biggest downward revisions affected Europe, hitting Germany and Italy.

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Link to Full Article in The Financial Times