(Washington) The managing director of the IMF, Kristalina Georgieva, called on Friday for “a resolution as quickly as possible” of the negotiations concerning the ceiling of the American debt, estimating that finding a solution was “essential” for the global economy.
The boss of the International Monetary Fund was speaking at a press conference after the publication of a report on American economic activity, on the occasion of which the institution revised its growth forecasts slightly up .
Recalling US Treasury Secretary Janet Yellen’s call for a “quick resolution” on the matter, Ms.me Georgieva assured “to share this expectation. We are very keen to see a resolution as soon as possible.”
“We have to remember that we entered the last quarter of an hour, so to finish with a positive result is essential, from a world point of view,” added Mme Georgiava.
An agreement to raise the debt ceiling, reached last January, seemed in sight between Republicans and Democrats on Friday, as the window of opportunity narrows to avoid a default.
The boss of the Fund, however, stressed that, for the moment, the impact on the financial markets remained minimal, due to a certain habituation to this type of situation.
“Experience shows us that it is often necessary to go to the limit for a solution to be found”, concerning the American debt ceiling, noting a “relative calm. We’ve seen some movement in niche markets, but that’s not significant yet.”
The fact remains that the United States is too indebted, according to the IMF, which, in its report, invites the country to make “a significant adjustment in order to place the public debt on a downward trend by the end of this decade”.
“It is necessary to do more to reduce the public debt”, underlined Mr.me Georgieva, which must go through “a series of measures aimed both at increasing income from taxes and adjusting the structural imbalances of programs such as Medicare or retirement”.
‘Resilient’ US economy
In its report, the IMF revised its growth forecast for the United States in 2023 slightly upwards, now expecting 1.7% against 1.6% expected in April.
“The US economy has shown resilience despite the significant tightening of monetary and fiscal policies made in 2022,” said the institution, which nevertheless stresses that “inflation remains a persistent problem”.
The Fund indeed expects core inflation, which excludes food and energy prices, “to remain significantly above the 2% target in 2023 and 2024”, which should cause US central bank (Fed) interest rates to stay between 5.25% and 5.5% “until the end of 2024”.
PCE inflation, the Fed’s preferred inflation, is expected to reach 3.8% at the end of 2023 and 2.6% at the end of 2024, which is higher than previous forecasts, in April.
We believe rates will need to be a little higher and for longer. There is also considerable uncertainty regarding economic and inflationary dynamics.
Kristalina Georgieva, Managing Director of the IMF
In a statement, US Treasury Secretary Janet Yellen noted “the resilience of the US economy in the face of global challenges and the progress […] made in the past year to reduce inflation and maintain a strong labor market”.
The IMF indeed underlines the solidity of the American job market, with a “rate of participation in economic activity higher than pre-pandemic levels” as well as a “historically low unemployment rate for women and Afro- Americans”, two groups generally more affected by unemployment.
The institution also recognizes the efforts made in 2021 to reduce poverty, in particular through an increase in wages for low-income people, leading to a significant drop in the poverty rate, which fell from 11.8% in 2019 to 7.8 % in 2021.
However, the trend was partially reversed in 2022, due to the end of the aid put in place during the pandemic, but also under the effect of inflation, which reduces the positive impact of salary increases.