IMF, Goldman Sachs see FOMC cutting rates if April employment data weakens

WASHINGTON (AFX) - The IMF and Goldman Sachs Group Inc economists said the U.S. Federal Open Market Committee should and is likely to cut its key fed funds interest rate by 25 basis points if tomorrow's employment report for April shows a strong rise in unemployment.	    Speaking on the sidelines of a policy forum here, the IMF's economic counsellor Michael Mussa and Goldman Sachs International vice chairman Robert Hormats said the FOMC should cut rates by 25 basis points at its next scheduled meeting on May 15 if the report reflects a weak set of employment data.	    The fed funds rate is currently at 4.5 pct, following the FOMC's intrameeting 50 basis point cut on April 18. 	    "In general, I think they should cut, and they should probably cut by 25 basis points... if we get a relatively weak employment report tomorrow... then they should reinforce what they already done (by cutting rates further)," said Mussa. 	    "I agree with that, I think the employment report is going to be critical and I also agree that the first quarter growth numbers will be revised downwards," Hormats said.	    Tomorrow's data is expected to show that the unemployment rate rose to 4.4 pct in April from 4.3 pct in March while nonfarm payrolls are forecast to rise by 21,000 compared with a decline of 86,000 in March, according to a consensus survey of Wall Street analysts conducted by AFX News earlier this week.	    "I am concerned that we are going to see a further weakening of the employment picture and I also think we are going to see a weakening of consumer sentiment in part because of (falling) employment," Hormats said adding that the FOMC is likely to cut rates "by at least 25 (basis points)" if Friday's report is weak.	    Hormats said that he sees the FOMC cutting rates by a total of 75 basis points by the autumn.	    The Organization for Economic Cooperation and Development, which put out its biannual economic outlook earlier today, has factored in a 25 basis point cut in the fed funds rate at the May 15 meeting of the FOMC.	    Mussa also reiterated calls he made before last weekend's meeting of the IMF and the World Bank that the European Central Bank needs to cut its interest rates by 50 basis points.	    The ECB left its key interest rate unchanged at 4.75 pct following its monetary policy meeting a week ago.	    Asked how critical it is that the ECB cut rates, Mussa replied: "I don't think we should exaggerate the urgency of such action. I believe that, for the past month or so, the balance of considerations has been such as to argue in favor in an initial step of easing."	    "I think the first step would be appropriate later this year. That's conditioned on my view that the euro area economy is going to remain relatively weak, well below previous forecasts, and that the inflation concerns that have been out there will abate," Mussa added.

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