The International Monetary Fund (IMF) has warned America’s central bank that it might have to raise interest rates quickly to contain inflation. The US Federal Reserve meets next week to decide whether to leave the cost of borrowing unchanged at 2 per cent or to increase rates.

While Ben Bernanke, chairman of the Federal Reserve Bank, faces a dilemma over either keeping rates low to help to stimulate the flagging US economy, or to raise them to reduce inflation, the IMF was surprisingly upbeat about the outlook for the US.

IMF economists yesterday raised their forecasts for US economic growth next year from 1.6 per cent to 2 per cent, indicating that they do not perceive America to be at risk of enduring a severe and prolonged recession.

The forecast represents a marked departure from the IMF’s earlier gloomy position on the outlook for the US. In April, the IMF expected that the economy would shrink by 0.7 per cent in the fourth quarter of 2008, compared with the same period the year before.

The IMF indicated that the effect of the $150 billion (£76 billion) tax rebate from Washington should help the US economy to climb out of a recession — two thirds of the American economy is dependent on consumer demand.

The IMF said: “The slowdown in the US has been less than feared, and a recovery should begin next year. A more rapid recovery is clearly possible given the substantial policy stimulus and proactive response of financial markets to repair balance sheets. Monetary policy settings are now broadly supportive of recovery and a risk-management approach would suggest that policy should be on hold. Vigilance will be required, given the stimulus in the pipeline and the imperative of keeping inflation well in check.”

It added: “The US economy has held up well and has avoided the hard landing that generally follows such shocks. The response of policymakers has been relatively quick and decisive and we think these will help cushion the shocks. If further action becomes necessary, it could most effectively be targeted at the housing and financial sectors at the root of the current problems.”

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