International Monetary Fund cuts U.S. growth outlook amid absent policies

IMF cuts US outlook, calls Donald Trump's growth target unrealistic

IMF cuts US outlook, calls Donald Trump's growth target unrealistic

The International Monetary Foundation (IMF) lowered its forecast for US economic growth for this year to 2.1%, down from the previous estimate of 2.3%.

The IMF reduced its forecast for USA growth this year to 2.1 percent, from 2.3 percent in the fund's April update to its world economic outlook.

The IMF called for policies to raise the potential growth rate of the United States economy, including through investments in improved education and training programs, and policies to provide incentives to work, such as an earned-income tax credit.

Moreover, IMF leaders say it would be challenging to boost growth to 3% with the USA job market already at full employment, along with a large share of baby boomers retiring and slow gains in productivity.

"Looking at the US data, it is unlikely that these set of policies can generate an acceleration of economic growth of a magnitude of let's say approximately 1 percentage point".

"All in all, in our judgment, the USA economic model is not working as well as it could in generating broadly shared income growth", said Alejandro Werner, head of the IMF's Western Hemisphere department. The IMF now says the economy will expand by 2.1% this year and next.

On a more positive note, the International Monetary Fund noted how GDP was 12% higher than its pre-recession peak with job growth persistently strong and, despite, measurement uncertainties, the USA economy "appears to be back at full employment".

Trump, a Republican, campaigned previous year on a pledge to swiftly cut taxes, roll back regulations and lift infrastructure spending, prompting many economists and investors to increase their USA growth forecasts. It also supports budget belt-tightening to slim the deficit and trim public debt, and boosting infrastructure spending.

The IMF disagreed, questioning whether the package as proposed will deliver the administration's long-term growth targets, balance the budget and cut public debt. But the fund says the administration's plan doesn't add up. The IMF recommended the USA raise taxes on consumption, carbon emissions and gas. And, it said, Mr. Trump's proposed budget cuts would disproportionately affect the poor and middle class and should be moderated. In 2018, the Fund said, the U.S. economy will expand by 2.1 percent as well, rather than the earlier expected acceleration to 2.5 percent.

The IMF again suggested the Federal Reserve should be ready to let price growth modestly overshoot its inflation goal, a move that would "provide valuable insurance against the risks of disinflation and having to bring the federal funds rate back to zero".

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