The necessary fiscal adjustments would mean “several years of difficult political decisions,” the fund warned. Unchecked debt growth could ultimately stifle U.S. growth and snowball into a global financial crisis.
“It’s a good time,” said Kristalina Georgieva, the fund’s managing director. “The U.S. economy is doing very well, and now is the time to take steps to protect against future risks.”
President Biden rejected at least one of the fund’s proposed solutions: raising taxes on people making less than $400,000 a year.
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But debt aside, the IMF statement praised the U.S. economy’s “remarkable performance” in recent years. Inflation has remained largely under control without the sharp rise in unemployment that many economists had predicted. Gross domestic product (GDP) growth has exceeded expectations and is expected to continue.
“The United States is the only G20 country whose GDP level is above its pre-pandemic level. This is good for the US and for the global economy,” Georgieva told reporters.
Despite the ballooning U.S. debt, financial markets remain unsettled. return The interest rate the government has to offer to induce investors to buy 10-year Treasury notes has been hovering around 4.2%, below typical rates before the Great Recession.
The US economy According to Georgieva, mobile finance is taking a growing share of global capital. Before the pandemic, 18% of funds invested outside of borders were invested in the U.S. Now, the U.S. share of mobile finance is 33%, she said.
Debt and deficits will be early challenges for the next president. Congress must raise the statutory debt ceiling in early 2025 or the United States will default on its debt. Lawmakers also must decide by the end of 2025 whether to extend President Trump’s 2017 tax cuts or allow them to expire, raising taxes for most Americans.
In April, as part of a separate investigation, IMF officials criticized the U.S. for allowing government budget deficits to stimulate the economy, effectively making it difficult for the Federal Reserve to cut interest rates.
The IMF on Thursday cited potential upside risks to inflation and said the Fed should wait until “at least the second half of 2024” to cut interest rates.
Georgieva met with Treasury Secretary Janet L. Yellen to discuss the review, hours before the news conference at IMF headquarters.
The IMF’s statement on Thursday was just the latest warning about the U.S. debt situation. The Organization for Economic Cooperation and Development said Tuesday that increasing debt at a time when interest rates are rising would limit the U.S.’s ability to meet other needs, including defense, an aging population and future economic shocks.
The OECD noted that years of repeated tax cuts have shrunk governments’ revenue bases as they face growing spending obligations for programs such as Social Security and Medicare, as well as rising interest costs.
Corporate taxes account for less than half of the economy today than they did in 1967. Congressional Budget OfficeDuring the same period, interest payments on government bonds doubled to 2.4% of gross domestic product.
The OECD, a group of more than 30 rich countries, called for “sustained, steady and multi-year” budgetary measures to reduce debt, saying in its report that only Italy, Greece and Japan have higher total debt-to-GDP ratios. Annual Evaluation of the US economy.
According to the CBO, publicly held government debt, excluding bonds in the Social Security Trust Fund, is equivalent to 99 percent of the U.S. total product and is expected to reach 122 percent by 2034.
Many economists say the government’s growing debt burden needs to be addressed with a combination of spending cuts and tax increases. Stabilizing the debt relative to the size of the economy is a “really important goal,” Jared Bernstein, chairman of the White House Council of Economic Advisers, said this week at the Brookings Institution.