International Monetary Fund (IMF) Managing Director Christine Lagarde said U.S. economic growth is in the positive range but that growth is slow, caused by both the eurozone debt crisis and domestic stagnation on near-term tax and regulation policies.
"The U.S. economic recovery remains tepid and downside risks have intensified," Lagarde told reporters Tuesday at a press conference in Washington, D.C.
The IMF chief made the remarks accompanying the release of the concluding statement by IMF staff following this year's Article IV Consultation with the United States.
According to the U.S. Treasury Department, Article IV consultations usually take place once a year, when IMF economists gather information and hold discussions with government and central bank officials, private investors and labor representatives, and members of the legislature and civil society organizations and then present a report to the IMF executive board for discussion.
This year, the IMF recommended the U.S. undertake continued policy action to boost the economic recovery, including financial sector reform and fiscal responsibility.
"We believe that fiscal consolidation is necessary," Lagarde said. "It has to be sensible and certainly not excessive. So avoiding excessive fiscal consolidation and promptly raising the debt ceiling are two policy actions that need to be had."
Lagarde also highlighted the IMF's support for a further extension of securities holdings.
"Further easing might be needed and used if the situation was to deteriorate," she said.
In addition to short-term support for the recovery, Lagarde added "the U.S. must also promptly restore medium-term fiscal sustainability...The plan will require both higher revenue and less public spending."
Finally, Lagarde advocated strongly for structural reform, saying it is important "reform of financial regulation and supervision be completed as quickly as possible," especially implementation of the Dodd-Frank Act provisions.
The IMF report forecasts continued slow growth in the U.S. of around 2 percent this year, rising slightly to 2.3 percent in 2013.
At the same time, Lagarde warned, "Too strong a contraction of the U.S. economy...would have significant spillover effects outside the United States."
"On the domestic front, failure to reach an agreement on near-term tax and spending policies would trigger a severe fiscal tightening in 2013, threatening the recovery," the IMF concluding statement read.
This, however, can be avoided if policymakers come to an agreement on the appropriate steps going forward, Lagarde cautioned.
by RTT Staff Writer
For comments and feedback: firstname.lastname@example.org