IMF: Premature Fed Exit Could Fuel $2.3 Trillion in Global Bond Losses
WASHINGTON--A premature exit by the U.S. Federal Reserve from its easy-money policies could cause $2.3 trillion in global bond portfolio losses, the International Monetary Fund warned Wednesday.</br></br>Although the IMF assumes in its latest economic forecasts that the U.S. central bank will unravel its policies at a tempered pace, the fund said the market's volatile reaction to Fed exit comments earlier this year show there is still a risk of moving too fast.</br></br>"Engineering a smooth transition to monetary normalization will require a clear and well-timed communication strategy by the Federal Reserve to minimize interest rate volatility," said Jose Vinals, the IMF's top financial counselor.</br></br>"Containing longer-term interest rates and market volatility has already proven to be a substantial challenge, as shown by the sharp rise in bond yields and volatility since May," he said.</br></br>Global stock, bond and currency markets took major hits earlier this year after Fed officials indicated they could soon begin withdrawing the bank's extraordinary stimulus, possibly before the end of this year. Markets have since calmed as the Fed tempered expectations for an earlier exit, but central-bank officials still aren't ruling out reducing their $85-billion-a-month bond purchases before the end of the year.