Financial markets have fully priced in a rise in U.S. interest rates next week, the deputy head of the International Monetary Fund said on Wednesday. IMF First Deputy Managing Director Anne Krueger said that U.S. rates were "abnormally low" and that inflation expectations were rising on buoyant global demand and high oil prices. "And I think the expectation is firmly priced in that there will be some increase in U.S. rates at the end of this month," Krueger told reporters at a news conference in Berlin. Economists are expecting the U.S. Federal Reserve to raise interest rates by 25 basis points at its next policy meeting on June 29-30, taking the federal funds rate to 1.25 percent.
Krueger said high oil prices were unlikely to dampen global growth, noting that demand, not supply, was fuelling the big increases in the cost of raw materials. "Obviously if the price of oil is going up, because the world economy is expanding very rapidly, what the oil price may do is slow down that expansion to some extent. But it's unlikely to reverse it unless something else happens too," Krueger said. Krueger added that it would take something "fairly significant" to derail the global recovery over the next year. She said the economic outlook for the next twelve months was benign, noting strong growth in the United States, China and much of Asia, and also a recovery in Europe. "There's upturn in Europe and in Japan it's stronger than we thought," said Krueger. "Basically we're reasonally upbeat."///