Lagarde sees Fed starting rate increases in mid-year

[LONDON] International Monetary Fund Managing Director Christine Lagarde said the Federal Reserve will probably begin raising interest rates within months in a sign that the economy is on the mend.

"Our expectation is that it's more likely to happen mid- year than at the end of the year," Ms Lagarde said on a Bloomberg Television panel hosted by Francine Lacqua at the World Economic Forum in Davos.

"The fact that the Fed is going to do that is good news in itself. It shows that things are moving in the right direction."

Speaking alongside Ms Lagarde were Goldman Sachs Group Inc president Gary Cohn and former Treasury Secretary Larry Summers.

Mr Cohn said that while the US economy is growing, he's concerned about the ability of the Fed to raise rates given the state of the rest of the world.

Weakness in Europe, Japan and China has dimmed the outlook for the global economy, with the IMF and World Bank reducing estimates for growth. In the euro area, the threat of deflation is pushing the European Central Bank into new stimulus, with quantitative easing forecast to be announced on Thursday.

Look at the "interest-rate differential that already exists," Mr Cohn said. "You look at the strength of the dollar today and it will only get stronger if we raise rates."

The euro approached an 11-year low against the dollar before the ECB announcement. It was little changed at US$1.1611 at 8:36 am London time.

"I am all for European QE," Mr Summers said. "The risks of doing too little far outweigh doing too much. That said, I think it's a mistake to think that QE will be a panacea in Europe."

BLOOMBERG