The International Monetary Fund on Thursday said the U.S. Federal Reserve should not cut interest rates until “late 2024” and the government needs to raise taxes to slow the growing federal debt – including on households earning less than President Joe Biden’s $400,000-a-year threshold.
The prescriptions came in the detailed staff report from the IMF’s annual “Article IV” review of U.S. economic policies released on Thursday.
The Fund has been emphasizing in recent weeks the need for more fiscal prudence as U.S. deficits continue to grow despite robust economic growth and as Republicans and Democrats formulate tax and spending proposals ahead of November’s presidential election.
IMF chief economist Pierre-Olivier Gourinchas told Reuters on Tuesday that the Fed could afford to wait longer to start easing monetary policy due to a strong labor market.
But the staff report, opens new tab specifies that this shift should come in “late 2024,” to avoid more upside surprises in inflation data, without specifying a particular month.
The Fed’s next policy-setting meeting is July 30-31, with other meetings scheduled for Sept. 17-18, Nov. 6-7 – after the U.S. election – and Dec. 17-18.
“Given salient upside risks to inflation — brought into stark relief by data outturns earlier this year — it would be prudent to lower the policy rate only after there is clearer evidence in the data that inflation is sustainably returning to the FOMC’s 2% goal.”
The IMF said that the U.S. public debt to GDP ratio is projected to remain well above pre-pandemic forecasts over the medium term, reaching 109.5% by 2029 compared to 98.7% in 2020.
“Such high deficits and debt create a growing risk to the U.S. and global economy,” the IMF said, adding that progressive tax increases were needed, including for those earning less than $400,000 per year, and eliminating a range of tax expenditures.
