10:24 11/04/2019
The International Monetary Fund warned of "dangerous" consequences for the U.S. economy if moves such as President
Donald Trump's calls for Federal Reserve interest-rate accommodation lead to monetary policy mistakes.
"Undermining central-bank independence would be dangerous," Tobias Adrian, director of the fund's monetary and
capital-markets department, said when asked about Trump's recent criticism of the Fed. He spoke as the IMF's
spring meetings were getting under way in the U.S. capital.
The Fed left its policy rate unchanged last month, and Chairman Jerome Powell, whom Trump installed in February 2018,
said rates could be on hold for some time as global risks weigh on the economic outlook and inflation remains muted.
The IMF supports the Fed's stance on monetary policy, Adrian said.
The IMF's latest Global Financial Stability Report warns that easy monetary policy and financial conditions may raise
already high debt levels in advanced economies, raising "the specter of a deeper downturn in the future."
The IMF sees elevated vulnerabilities in sovereign and corporate assets, as well as among non-bank financial institutions,
in major economies around the world. The credit tightening from last year's market selloff was too fleeting
to have an impact on financial stability, making it likely that vulnerabilities will continue to build, the fund said.
Europe's Struggles
If the euro area enters a downturn while the ECB's deposit rate is still in negative territory, the region's central bank
will probably have to consider a range of unconventional measures, including setting targets for long-term interest rates
and buying riskier assets such as corporate bonds, Adrian said.
"What you don't probably want to do is go more negative at the short end. You're already quite negative and at some point
if you went more negative, that really generates the potential to move into cash," said Adrian, referring to the incentive
people would have to hold cash if deposit rates drop below zero.
New Conventional
Policy makers need to prepare for a world where unconventional monetary policies become the norm, he said. "We might have
to get used to a world where these unconventional monetary policy tools are becoming more like a conventional
monetary-policy tool."
Adrian said the recent inversion of the yield curve is a "strong" market signal that investors should take seriously.
Ten-year Treasury yields fell below three-month rates for the first time since 2007 last month. Inversion has
traditionally been considered an omen of recession in the U.S.
"Every time the yield curve inverts, there are lots of memos written within central banks saying 'this time is different,'"
said Adrian, who worked at the Federal Reserve Bank of New York before joining the IMF. "At least three or four times,
those memos look pretty bad."
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