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IMF chief defends rate hikes after Trump slams ‘crazy’ Fed
NUSA DUA, Indonesia, Oct 11, 2018 (BSS/AFP) – IMF chief Christine Lagarde
on Thursday defended central bank rate hikes in a veiled rebuke to Donald
Trump after the US president blamed “crazy” Fed policies for contributing to
financial market turmoil.
Lagarde spoke as a global market sell-off rolled into Asia following
Trump’s comments, underscoring rising financial volatility that the IMF will
address at its annual meetings with the World Bank this week in Bali.
Lagarde said central bank rate increases such as those by the policy-
setting US Federal Reserve were justified by fundamentals.
“It is clearly a necessary development for those economies that are
showing much improved growth, inflation that is picking up… unemployment
that is extremely low,” she told a press briefing in Bali.
“It’s inevitable that central banks make the decisions that they make.”
Following a sharp Wall Street sell-off on Wednesday, Trump said the
Federal Reserve “is making a mistake.”
“I think the Fed has gone crazy,” he said.
– Gathering clouds –
Trump has repeatedly touted Wall Street record highs as proof of the
success of his policies including a confrontational trade strategy, and
frequently criticises the Fed for gradually raising interest rates, which
could press the brakes on equity markets.
The world’s financial elite are on the Indonesian holiday island for a
week of discussions clouded by the economic outlook.
An IMF report released Wednesday said global growth could be at risk if
emerging markets deteriorate further or trade tensions escalate.
Much of the global angst has been dominated by Trump’s escalating tariff
war with China and his disdain for world trading norms.
But higher US interest rates have also helped send emerging market
currencies into a tailspin, as countries that borrowed heavily in dollars
race to pay back debt.
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Lagarde said in Bali that world leaders should fix global trading systems
instead of tearing them down, in response to rising nationalist and
protectionist impulses.
While defending rate hikes, Lagarde added Thursday that uncoordinated
increases in advanced economies were contributing to destabilising capital
outflows from emerging markets.
Combined with trade tensions, this had created “a bit of an unprecedented
situation” for the world economy, she said.
“Clearly as a result of (rate hikes)… we see and we will continue to see
capital flow movements,” she added.
“The fact that large central banks of advanced economies are not exactly
all moving at the same pace is also probably accelerating that phenomenon.”
– Economic tremors –
Trump has levied or threatened tariffs on goods from economies around the
world, notably China, but also on traditional allies such as the European
Union.
The head of the World Trade Organization warned that a “full-blown
commercial war” could shrink global trade by nearly 18 percent and also knock
worldwide GDP, hurting the United States, China, and others.
Lagarde said she would meet Pakistani officials on Thursday, with
expectations that Islamabad will request a bailout over a looming balance-of-
payments crisis, with Prime Minister Imran Khan saying this week his country
needs $10-12 billion.
“I’m assuming that there might be a programme request on their part, but
that has not been discussed and we will explore that this afternoon,” she
said.
The IMF on Tuesday cut its global GDP growth forecast by 0.2 percentage
points to 3.7 percent for both 2018 and 2019, citing the economic
uncertainties.
The meetings open in the wake of an earthquake and tsunami on September 28
on Sulawesi island that left more than 2,000 dead and possibly thousands more
missing, highlighting disaster-prone Indonesia’s safety hazards.
Those risks were highlighted again early Thursday, when a 6.0-magnitude
quake rattled parts of the islands of Java and Bali, including meeting venues
and hotels.
Three people were killed on Java when buildings collapsed.
No damage or casualties were reported on Bali, but the tremor prompted
summit organisers to issue guidance to attendees on what to do if a quake
strikes.
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