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Still scope for US interest rate cut, says IMF's chief economist

Key Points
  • The Fed's decision on interest rates is due at 2 p.m ET on Wednesday.
  • European Central Bank (ECB) President Mario Draghi signaled Tuesday that more stimulus, in the form of a possible rate cut, could be forthcoming for the euro area.
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Central banks' independence has to be preserved, IMF chief economist says

There is still room for the U.S. Federal Reserve to cut interest rates, the International Monetary Fund's (IMF) chief economist suggested ahead of the latest decision on rates from the central bank on Wednesday.

The Fed is widely expected to clear the way for a July interest rate cut by downgrading their economic forecast, tweaking the language in their statement and reducing their interest rate forecasts. Many analysts are now pricing in two rate cuts by the end of 2019. The Fed's decision on interest rates is due at 2 p.m ET on Wednesday.

Speaking to CNBC's Annette Wiesbach in Sintra, Portugal, IMF Chief Economist Gita Gopinath suggested that "you could use more conventional policy in the U.S., because there is still some scope in terms of interest rate cuts."

President Trump has long been vocal in exerting pressure on the U.S. central bank to cut rates but Gopinath emphasized the importance of independent central banks "particularly on the operational side when it comes to making big policy decisions."

"That has to be preserved - there are a lot of benefits that come from this independence, and it is important to maintain that."

The Fed's forthcoming decision on rates comes after European Central Bank (ECB) President Mario Draghi signaled Tuesday that more stimulus, in the form of a possible rate cut, could be forthcoming for the euro area.

U.S. President Donald Trump railed against Draghi and accused him of currency manipulation, before hinting that he might look to demote Fed Chairman Jerome Powell depending on the outcome of Wednesday's Fed monetary policy meeting.

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