The International Monetary Fund on Friday called on the United States to act carefully in deciding when to begin tapering its quantitative easing policy.
It is appropriate for U.S. monetary authorities to "carefully assess the economic outlook and adjust the pace and composition of (asset) purchases over time accordingly," the IMF said in a report on the U.S. economy, prepared after consultations between the IMF and U.S. government.
The U.S. authorities assured the IMF team that "their approach to exit from QE would not be a predetermined, mechanical process," the report noted.
The U.S. authorities should also communicate decisions to financial markets effectively, the report said.
The IMF staff "emphasized that expectations of a tapering or end of the Fed's asset purchases could trigger a sharper-than-expected sell-off of fixed-income assets," or bonds, by triggering expectations interest rates would rise, the report noted.
The IMF report is consistent with the content of U.S. congressional testimony earlier this month by Federal Reserve Chairman Ben Bernanke.
"In the event that domestic conditions deteriorate or global financial turmoil intensifies, staff suggested that the Fed could provide further stimulus by adjusting the asset purchase program," the report said.
The IMF staff and the U.S. authorities also agreed that "a premature withdrawal of monetary stimulus" could exacerbate the risks to financial stability, it said.