IMF Pulls Back Expectations of US Economic Growth

by Frankie Norman June 28, 2017, 1:23
IMF Pulls Back Expectations of US Economic Growth

The US is enjoying its third longest economic expansion since 1850.

The IMF warned that "significant policy uncertainties imply larger-than-usual" risks to the USA forecasts on either side, since spending cuts could lower growth, while tax cuts could provide stimulus and expand the economy. The US economy, in its current shape, the Fund said, is going at its fastest possible, because the unemployment is very low, at 4.3 percent, meaning it is the lack of reform that is holding the GDP growth back.

An IMF assessment says the American economy is struggling to adapt to low productivity growth, technological changes that are reshaping the labor market, and an aging population.

"Alongside the ongoing normalization in policy rates, it is appropriate that the Federal Reserve looks to unwind the post-crisis increase in its holdings of treasury and mortgage backed securities", the International Monetary Fund said, noting continued clear communication would help the central bank smoothly shrink its balance sheet and avoid undue market volatility.

The IMF, therefore, appears to be increasingly bankrupt, both morally, and in terms of applicable economic ideas, but the Trump administration had better hurry up indeed delivering on their higher growth promises, as the risks of a recession hitting sometime between 2018-2020 are now heightened.

"All in all, in our judgment, the USA economic model is not working as well as it could in generating broadly shared income growth", said Alejandro Werner, head of the IMF's Western Hemisphere department.

The IMF disagreed, questioning whether the package as proposed will deliver the administration's long-term growth targets, balance the budget and cut public debt.

"Looking at the USA data, it is unlikely that these set of policies can generate an acceleration of economic growth of a magnitude of let's say approximately 1 percentage point".

"The consultation revealed differences on a range of policies and left open questions as to whether the administration's proposed policy strategies are best suited to achieve their intended objective", the fund said.

Although, the president already has said that the broad principles of this plan would be simplifying taxes, rebuilding roads and bridges, and lowering government spending.

The IMF said the Trump administration's latest budget plans would place a disproportionate share of spending cuts onto low- and middle-income households, adding "this would appear counter to the budget's goals of promoting safety and prosperity for all Americans".

"The U.S. ought to be judicious in its use of import restrictions on national security grounds and avoid measures that inadvertently weaken, rather than strengthen, the overall economy", it said.

The report also warned against measures that would make the United States less open to trade, even while there is room to modernize pacts like the North American Free Trade Agreement (NAFTA), a process Washington already has begun.

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