The US economy is likely to ‘stagnate’ in the second half of this year, the International Monetary Fund warned on Friday, as stock markets in the US and Europe fell to their lowest levels since March and US bank shares hit a five-year low. The Dow Jones Industrial Average closed below 12,000 for the first time since March, while the broader S&P 500 fell 1.9 per cent, as oil rallied and concerns about the financial sector intensified. The S&P financials index hit its lowest level since April 2003, 5 per cent below its March low. Commercial and regional banks have borne the brunt of the recent pullback, because of fears about rising housing and consumer debt delinquencies. The IMF said continued economic weakness would result in inflation risk going down, not up, in the coming months, and urged the Federal Reserve to keep interest rates on hold for the time being – challenging market expectations that rate increases will soon be required. The IMF also suggested that the dollar had declined to a level at which it was closer to, if not at, its medium-term equilibrium value, on a broad trade-weighted basis. John Lipsky, second-ranking IMF […]