IMF official predicts US recovery

Much of the stimulus from the Federal Reserve's interest rate cuts has yet to work its way through the US economy but a global economic recovery is already under way, a top International Monetary Fund official said yesterday.

Ms Anne Krueger, the IMF's first deputy managing director, told a conference she was confident rapid global growth would resume despite the many risks such as higher oil prices, a further sell-off in equity markets and increased instability in some key emerging markets.

"The recovery is slower than earlier anticipated a global recovery is well under way," Ms Krueger said.

"I think we will see a resumption of more rapid growth."

"We do remain cautiously optimistic about the recovery," she said.

Ms Krueger's view of global economic prospects echoes last month's statements at the IMF's annual meeting when finance leaders said growth had slowed down but should remain on track despite rising risks.

Ms Krueger said there was more potential in Europe and Japan than in the United States to take measures to fuel growth. "There is ample scope in both Europe and Japan to get back on track," Ms Krueger said.

"Japan seems to be emerging from its third recession in a decade," she said, adding that Japan's "aggressive monetary policy easing" was "appropriate".

Referring to the European Central Bank, which meets today to set interest rates, she said: "There is room to ease monetary policy."

Ms Krueger said the Federal Reserve's current bias towards cutting interest rates was "appropriate" in the IMF's view, but added that further interest rate cuts were unlikely to give any major boost to US growth.

"Fiscal stimulus is not going to do much," she said.

"I don't think fiscal and monetary stimulus is the answer. The time lag between a rate cut and the full impact on the economy is about one year to 18 months in the United States," she said.

"There is still considerable monetary stimulus to go through in the US," Ms Krueger said.

The Federal Reserve last cut its benchmark federal funds rate to 1.75 per cent on December 12th, the eleventh rate cut in 2001. - (Reuters)