Bloomberg News

IMF Calls Fed’s Easing Steps ‘Appropriate’; More May Be Needed

October 05, 2011

Oct. 5 (Bloomberg) -- The Federal Reserve’s decision to keep interest rates low at least through mid-2013 and to extend the maturity of its security holdings is “appropriate,” the International Monetary Fund said.

“Consideration may need to be given to further unconventional measures should the recovery weaken further,” the Washington-based IMF said in its Regional Economic Outlook report released today. “Low interest rates will also support financial-market stability, although authorities should be vigilant to bouts of illiquidity arising from financial strains in Europe.”

Fed Chairman Ben S. Bernanke yesterday signaled to lawmakers he’s ready to take further easing steps if needed. Under the plan known as Operation Twist, announced last month, the central bank will replace $400 billion of short-term debt in its portfolio with longer-term Treasuries maturing in six to 30 years, aiming to reduce borrowing costs and spur the recovery of the world’s largest economy.

President Barack Obama’s $447 billion jobs plan, if approved in its entirety, “would offset the fiscal tightening in train for 2012, while being budget-neutral over the medium term,” the IMF said. It again urged the U.S. to adopt a “credible medium-term plan” to stabilize its debt.

Authorities need to provide additional support to the housing market, for instance by expanding programs that refinance mortgages and assist homeowners who are unemployed, the IMF said.

“Courts could be allowed to amend the terms of residential mortgages,” the IMF said. “Government-sponsored enterprises could play a more active role in principal write-downs.”

The IMF left its forecasts for growth of 1.5 percent this year and 1.8 percent next year unchanged from a September report.

--With assistance by Timothy R. Homan in Washington. Editors: Chris Wellisz, Paul Badertscher

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net;

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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