High fiscal deficits, public debt pose risks for US, global economy: IMF

By Ovunc Kutlu

ISTANBUL (AA) - The US' high fiscal deficits and the ongoing increase in the public debt-to-GDP ratio pose risks for the country and the global economy, according to the International Monetary Fund (IMF).

The financial agency stressed the need for a "frontloaded fiscal adjustment," through revenue and spending measures while redirecting some fiscal savings to programs to alleviate poverty.

"A structural and long‑term solution to address the issues related to the debt ceiling would also be beneficial," the IMF said Wednesday in its Staff Concluding Statement of the 2024 Article IV Mission.

It highlighted the ongoing intensification of trade restrictions, as well as the domestic content provision in various fiscal programs, which create a risk for the US and global economy.

It urged American authorities to unwind obstacles to free trade and instead advised them to support competitiveness through investment in workers and infrastructure.

"Working with international partners to address the core issues that risk undermining the global trade and investment system, including through concerted efforts to strengthen the WTO (World Trade Organization) and ensure a robust and modern multilateral rules‑based system, will be critical," said the statement.

The IMF said the US Federal Reserve should not reduce its monetary policy interest rate until there is clearer evidence that inflation is sustainably returning to its 2% target.

"Clear communication, including forward guidance, will help guide market expectations in line with the Fed’s intended policy path," it said.

The agency expects the American economy to expand 2.6% this year and 1.9% next year, after growing 2.5% in 2023.

The Fed's federal funds rate is estimated at 5.1% for 2024 and 4.1% for 2025, after 5.4% last year, which suggests the IMF expects at least one interest rate cut from the Fed this year, and an additional four next year.