Business & Economy

IMF calls for quick resolution of US debt-ceiling standoff

Washington, May 26 (EFE).- The head of the International Monetary Fund (IMF) said here Friday that political leaders in the United States need to agree as soon as possible on raising the debt ceiling and averting what could be the largest default in history.

“We all have read the fairy tale about Cinderella – Cinderella having to leave the ball exactly at midnight,” Kristalina Georgieva said. “And we’re at this point. So before our carriage turns into a pumpkin, could we please get this sorted?”

The IMF managing director said she had shared her concerns with US Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell during separate meetings earlier Friday.

Yellen has warned that the US could default on some obligations as early as June 1 if negotiations between the administration of Democratic President Joe Biden and the Republican-controlled House of Representatives do not lead to passage of a bill raising the debt ceiling.

Georgieva said that signs negotiators for Biden and House Speaker Kevin McCarthy are making progress toward a deal made her hopeful of seeing a “12th-hour” accord to avoid catastrophe.

“The US Treasury market is the anchor of stability for the global financial system. You pull the anchor, the world economy, the ship on which we all travel, is in choppy and even worse, unchartered waters,” the Bulgarian economist said.

“Inevitably, we would be at the time of contraction in the US and in the world economy and that would come as a shock, upon shock upon shock,” she said.

Looking beyond the present crisis, Georgieva appealed to the US Congress to devise a new approach to fiscal policy that does not include periodic fights over the debt ceiling.

“Can you please come up with a different way in which you address this issue?” she said during the presentation of the IMF’s latest report on the US economy, which advocated steps by Washington to reduce budget deficits by boosting tax revenues.

“The sooner this adjustment is put in place, the better. It is worth noting that the fiscal adjustment can be front loaded, and by doing so it would help the Fed in its efforts to reduce inflation,” the IMF chief said.

IMF economists increased their forecast of GDP growth in the US this year from 1.6 percent to 1.7 percent and projected that the headline unemployment rate will climb gradually from 3.8 percent to 4.4 percent by the end of 2024.

While hailing the resilience of the US economy, the IMF report described strong consumer demand and the tight labor market as “a double-edged sword, contributing to more persistent inflation.”

To bring inflation down to the Federal Reserve’s target of 2 percent, according to the IMF, “will require an extended period of tight monetary policy,” and that in turn calls for conveying a clear message to markets and the public.

“In this regard, greater emphasis should be placed on the need for interest rates to remain at high levels for an extended period of time,” the report said. EFE pamp/dr

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