By Anna Yukhananov
WASHINGTON Jan 15 The International Monetary
Fund expects global growth to pick up this year, though
deflation is a "rising risk" as long as economic growth stays
below what policy-makers believe is optimal, the head of the
Fund said on Wednesday.
IMF Managing Director Christine Lagarde expressed concern
about price growth remaining below the target of many central
banks, which could hurt the nascent recovery.
"If inflation is the genie, then deflation is the ogre that
must be fought decisively," Lagarde said at the National Press
Club in Washington.
An inflation rate that is well below the 2 percent targeted
by some of the world's major central banks carries risks in the
longer term because it can deflate wages and demand, depressing
In the United States, Federal Reserve officials are stumped
about why inflation has stayed so low for so long, and some
worry it could be a sign the U.S. recovery is not as strong as
some other economic data might indicate. In theory, inflation
should rise as the job market heals.
However, disappointing data on U.S. nonfarm payrolls last
week offered a cautionary note after a string of data - from
consumer spending and trade to industrial production - had
suggested the U.S. economy ended 2013 on strong footing and was
positioned to strengthen further this year.
While December's unemployment rate fell 0.3 percentage point
to 6.7 percent, its lowest level since October 2008, the decline
mostly reflected people leaving the labor force.
Lagarde said central banks should be careful to withdraw
monetary stimulus only once the economy is clearly on a firm
The Fed last month decided to trim its monthly bond
purchases to $75 billion from $85 billion, and two of the U.S.
central bank's most hawkish policymakers said this week that it
should bring its bond-buying program to a swift close.
Lagarde said the so-called "taper" of the Fed's bond buying
was not expected to roil markets as long as it was gradual.
"We don't anticipate massive, heavy and serious
consequences," she said.
However, she said more rapid adjustments could cause sharp
market gyrations and volatile capital flows, which would hit
some emerging markets in particular.
Developing economies, which had been the engine of the
global recovery after the 2008 financial crisis, are now slowing
due to cyclical factors, Lagarde said.
"Overall, the direction is positive, but global growth is
still too low, too fragile, and too uneven," she said.