International Monetary Fund MD Christine Lagarde. Picture: AFP PHOTO/SAUL LOEB
International Monetary Fund MD Christine Lagarde. Picture: AFP PHOTO/SAUL LOEB
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Paris — IMF chief Christine Lagarde has warned that economic stimulus from US tax cuts may lead to a rapid rise in interest rates that would weigh on countries with high debt.

The IMF was going to be "attentive" to the consequences of the reform, which notably included a sharply lower corporate tax rate, she said on French radio station France Inter.

Lagarde’s remarks echoed concern in financial markets that have been in turmoil amid fear that rising US inflation will trigger faster Federal Reserve interest rate rises than had previously been expected.

Several stock markets lost about 10% last week in a brutal correction, which Lagarde said had been "inevitable".

The US tax reform "will operate like a kind of stimulus on the current economic situation" in the US, which was already experiencing "strong" growth, she said.

"You have to ask yourself whether this will not result in rising wages, rising prices and therefore rising inflation and whether, consequently, there is a risk of a reaction by the monetary authorities, notably in the form of interest rates rising a little faster or a little more frequently," she said.

This would have "an impact on all of the world’s economies, especially on heavily indebted economies", Lagarde said.

"We believe that we must be attentive to what is going on, especially in the US."

AFP

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