THE FED SCARES THE IMF
The United States is poised to raise rates much more sharply than markets expect, risking a potential storm for global asset prices and a dollar shock for much of the developing world, the International Monetary Fund is warning in its just-issued IMF World Economic Outlook (WEO).
The IMF fears a "cascade of disruptive adjustments" as the US Federal Reserve finally pulls the trigger for the first time in eight years, ending an era of cheap and abundant dollar liquidity for the international system.
The Fed's long-feared inflexion point is doubly treacherous because investors seem ill-prepared for what lies ahead, and levels of dollar debt outside the US have reached an unprecedented extreme. The Fund says future contracts are pricing in a "much slower" pace of monetary tightening than the Fed itself is forecasting.
The crunch comes as the world economy remains becalmed in 2015 with stodgy growth of 3.5%, held back by another set of brutal downgrades for Russia and string of countries in Latin America. Emerging markets face a fifth consecutive year of slippage as they exhaust the low-hanging fruit from catch-up growth and hit their structural limits.
The world will remain stuck in a low-growth trap until 2020, and perhaps beyond.