He International Monetary Fund (IMF) reduced this Thursday by just one tenth, to 2.6%, its growth forecast for this year for the US economy, which has shown to be “robust, dynamic and capable of adapting”while recognizing that there is room to gradually lower interest rates and raise taxes.
“Economic activity and employment continue to exceed expectations for Article IV of 2023, and the decline in inflation has been less costly than feared,” the Fund said in the conclusions of its country report for the United States presented on Thursday.
Raising taxes: one of the IMF’s tips for the United States
The IMF recommended “carefully considering” an increase in indirect taxesprogressively increase the income taxes, even for households that earn less than US$400,000and delete tax benefits and social programs to reduce the deficit.
“Now, when the economy is strong, it is time to address those needs and reverse the trend (in the deficit),” IMF Managing Director Kristalina Georgieva said at a press conference.
“The United States is the only G20 economy whose level of Gross Domestic Product already exceeds the levels prior to the (covid-19) pandemic,” Georgieva indicated.
The IMF believes that the Federal Reserve must wait until at least “the end of 2024” to announce its first interest rate cutcurrently at a two-decade high, but there is “significant room for maneuver” toward price stability, as the effect of restrictive monetary policy has not had a serious effect on employment.
Risks
Regarding risks, the IMF pointed out that the high level of fiscal deficit and the ratio between GDP and debt is highwhile trade restrictions and banking risks should keep the US government on its toes.
The IMF expects the economy to maintain a GDP growth rate of around 2% until 2029, with unemployment stable at around 4% and inflation correcting below 2% next year.
“The United States debt is sustainable, but that level has risen and the deficit has risen. What we mean is that if they reduce it now they will have a much stronger path in the future,” Georgieva explained.
Georgieva recalled that the world is going through a period of geopolitical uncertainty and although the US has “enough room to maneuver its monetary policy” and inflation “shows clear evidence of returning to the sustainable level of 20%”, risks persist.
Criticism of protectionist stances towards China
The head of the IMF was also Criticism of US protectionist measures to protect or develop strategic sectors, especially against Chinaalthough he recognized the “negative consequences of globalization”, in general, with the loss of jobs and its effect on the poorest.
However, he noted that the US economy has traditionally been open to the world and has benefited from low trade restrictions.
Georgieva recommended “addressing these issues through more dialogue with trading partners, as we believe this will be less costly for the United States and the global economy, rather than resorting to tariffs that may lead to retaliation from other trading partners.”
