MNI BRIEF: IMF Says Fed Will Have To Telegraph Exit Smoothly

The Federal Reserve will have to hone its forward guidance on asset purchases and interest rates as it draws closer to reducing monetary stimulus in order to avoid potentially damaging market disruptions, the IMF said Thursday.

"It is therefore crucial that the Federal Reserve, once the beginning of the policy normalization process draws closer, provides clear and well-telegraphed communication about the pace of future asset purchases to avoid unnecessary volatility in financial markets," the Fund said in a new blog written from ex-New York Fed staffer Tobias Adrian and co-authors.

The IMF expects financial conditions to remain easy but added that there's still a risk of a market tightening. "Fast and sudden increases in US rates could lead to significant spillovers across the world, tightening financial conditions for emerging markets and throwing a wrench in their recovery process."