“Improved transparency” and “enhanced policy communications with the public are vitally important prior to and during the exit,” IMF staff, including a former New York Fed economist, said in the report.
The fund estimated that investor fears of a premature Fed exit from easy money policies could cause a spike of at least 125 basis points in 10-year Treasury bonds, especially if markets are uncertain about the central bank’s plans. The estimate was based on markets mistakenly assuming the Fed would start scaling back its easy money policies two quarters sooner than the IMF assumes is healthy….
The fund warned in its review of the euro-zone economy Thursday that an early Fed exit could create more headwinds for the currency union already bogged down in a deepening recession.
To its credit, however, the IMF did offer a little nugget that might be considered prejudicial to its case.
A resurgent manufacturing sector is poised to lift long-term U.S. growth if exporters can capture a bigger share of fast-growing Asian markets, the International Monetary Fund said Friday.
“The contribution of manufacturing exports to growth could exceed those of the recent past,” the IMF said in a new report on the U.S. economy that identifies important structural changes that could boost growth over the long term….
Although the IMF pointed to this possible longer-term bright spot, it also took a cautious stance on whether U.S. manufacturing is currently undergoing a “renaissance” that could transform the broader economy or is just a cyclical rebound.
“Excessively optimistic claims of a U.S. manufacturing renaissance seem unwarranted,” the IMF said.
IMF Urges More Clarity From Fed [WSJ Real Time Economics blog]
IMF fears Fed tapering could 'reignite' euro debt crisis [The Telegraph]
IMF: Manufacturing Could Life Long-Term U.S. Growth [WSJ Real Time Economics blog]