IMF’s Lagarde defends Fed rate hikes after Trump attacks

The head of the International Monetary Fund (IMF) has thrown her weight behind the U.S. Federal Reserve’s recent rate hikes. Her support came after U.S. President Donald Trump had called the Fed’s policies “crazy” and harmful.

In a press conference ahead of official IMF and World Bank talks in Bali, the managing director of the International Monetary Fund, Christine Lagarde, on Thursday defended central bank rate increases in the United States in what appeared to be a veiled rebuke to US President Donald Trump’s most recent remarks about the Federal Reserve.

Trump had blamed “crazy” Fed policies for contributing to current financial market turmoil as a global sell-off continued amid stronger signs of rising financial volatility which the IMF and the World Bank were scheduled to address during their annual meetings.

Lagarde told reporters the Fed’s rate hikes were justified by fundamentals.

“It is clearly a necessary development for economies that are showing much improved growth, with inflation picking up and unemployment being extremely low,” she argued.

The plight of emerging markets

The IMF chief acknowledged, though, that recent Fed rate increases had been a headache for many emerging economies as capital outflows continued and local currencies kept tumbling.

Lagarde added that those outflows were inevitable as the world braced for impacts from trade frictions.

She recommended more flexibility on capital flow management, adding that some emerging markets, including South East Asian countries, had been far too reluctant to ramp up capital controls to protect their own economies.

Italy in focus

Lagarde also touched on the economic situation in eurozone member Italy, warning Rome that it was well-advised to abide by EU fiscal rules and adhere to the bloc’s financial stability regulations amid concerns that the country’s 2019 budget could exacerbate financial problems.

“It will remind all of us that when you are a member of a club and you decide to stay in that club, then you play by the rules of the club,” she said.

The Italian government plans to increase the budget deficit next year to 2.4 percent to step up social spending. Analysts fear that slower-than-predicted growth could translate into less revenue for Rome, resulting in a higher-than-planned deficit.

Source: AFP & Reuters