30th June 2011
In its annual report on US economic policy, the IMF cited "unfavourable fiscal outcomes" as one of the main dangers to the country's economic outlook.
"The federal debt ceiling should be raised expeditiously to avoid a severe shock to the economy and world financial markets," the IMF said in a report. The report said a failure to reach a budget and debt compromise could result in a "sudden increase in interest rates and/or a sovereign downgrade," reports Bloomberg.
The IMF said that risks to the U.S. include housing market weakness and the European debt crisis.
The US Treasury has said that if Congress does not raise the debt limit – at present at $14,300bn – the US will run out of cash to pay its obligations and could default as early as August 2.
Democrats and Republicans have been negotiating to find a way to cut the long-term deficit and raise the nation's debt ceiling, reports Bloomberg.
Standard & Poor's in April put the U.S. government on notice that it risks losing its top credit rating unless policy makers agree on a plan by 2013 to reduce budget deficits and the national debt. Moody's Investors Service this month said it will put the U.S. government's Aaa credit rating under review for a downgrade unless there's progress on increasing the limit by mid-July.
The IMF said striking the right balance on fiscal policy represented the main challenge facing US economic officials. However, it cautioned against deep and immediate savings, saying "an excessively large upfront fiscal adjustment could also weaken domestic demand", reports Bloomberg.
The IMF is expecting the US economy to grow 2.5% this year, with growth rising to 2.7% in 2012 and 2013.
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