IMF Warns of Slower and Inflation Threat in U.S.

In a sobering report made public Sunday, the International Monetary Fund warned that the danger of rising inflation lurks in the United States and demanded a dose of higher U.S. interest rates to prevent that and protect the dollar.

The institution also predicted a sharp slowdown in the U.S. economic growth rate, to 1.9% in 1996 from an anticipated modest rate of 3.2% this year. An interest rate hike, as recommended by the IMF, would make the falloff in growth steeper yet.

In a more upbeat assessment of the state of the economy beyond the United States, the report also predicted that in 1995 the global economy will enjoy its strongest growth in seven years. It forecast a global growth rate of 3.8% in 1995 and 4.2% in 1996, a robust pace that would be the highest since 1988.

The IMF issued its report as finance ministers from its 179 member nations gathered in Washington for their annual spring meeting, which comes as the international economic system is struggling to accommodate the weakened dollar, the surging yen and the financial turmoil in Mexico.

At times in recent weeks, the skittering dollar has been down as much as 20% against the yen from its level at the beginning of the year.

The IMF said the sagging dollar bore a large share of the responsibility for the risk of rising inflation in the U.S. economy, and it held persistent federal budget deficits heavily responsible for the dollar’s plight. It forecast consumer price increases of 3.1% this year and 3.5% next year, up from 2.6% in 1994.

The dollar’s predicament has led to doubts about the traditional practice of keeping vast sums of reserve funds in dollars in central banks around the world. Many countries, particularly in Asia, are having to use their weakened dollars to pay back debts run up over the past decade that were denominated in the now-powerful yen, and they are losing in the exchange.