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Taking stock of the global economic slowdown and its effect on the US economy, the Federal Reserve officials on Saturday said that a possible hike in the interest rates could be delayed.
Fed Vice Chairman Stanley Fischer admitted that the global economic outlook may hamper the Fed effort to normalize the American monetary policy following years of extraordinary stimulus.
“If foreign growth is weaker than anticipated, the consequences for the US economy could lead the Fed to remove accommodation more slowly than otherwise,” Fischer said while addressing an event sponsored by International Monetary Fund (IMF).
Meanwhile, the IMF has cut down its global growth forecast ahead of its meetings this weekend. During the meeting, the global body is expected to hold discussions that would be mainly focused on the ways to stimulate global demand and prevent the further decline of euro zone and save it from going into recession.
During a conference sponsored by the Institute of International Finance, Fed Governor Daniel Tarullo said, “I am concerned about growth worldwide. There are more downside risks than the upside ones. It’s time to obviously think about them in our own policies.”
According to Chicago Federal Reserve Bank President Charles Evans, the strong dollar and weak global growth could mean slower inflation in the US. Moreover, it will allow less justification for the American central bank to increase key rates, Evans added.
Financial experts say the prevailing conditions in the euro zone could create serious complications for the Fed, especially at a time when it had been expected to start bumping up the benchmark borrowing costs in the mid-2015.
Fischer tried to address the concerns of developing nations over expectations of a potential tightening in the American monetary policies by the Fed in the coming times.
According to Fischer, the central bank would only hike key rates if the American economy is ready for it.
He further added that the growing borrowing costs in the country were unlikely to disrupt capital flows and investment opportunities worldwide.
Concerns are rife among the major developing economies like India and Brazil over a possible rate hike in the US. They fear that the increase in rates may suck investment away from their respective economies.