IMF calls for urgency in agreement on US debt ceiling

At a press conference in which she reported on the conclusions of the International Monetary Fund (IMF) on the US economy, under Article IV, Kristalina Georgieva said she shared the concerns of the Secretary of State for the Treasury, Janet Yellen, and the president of the Federal Reserve (Fed), Jerome Powell, with whom he met today, on the progress of negotiations.

Expressing her “conviction” that the negotiating parties will be able to reach a solution on the issue of the debt ceiling, the director general of the IMF stressed, however, that it was “frustrating” to see the negotiations reaching “the 12th hour” and insisted that a solution be reached “as soon as possible”.

“We all know the story where Cinderella had to leave the ball at midnight. We’re at that point. So can you please come up with a solution before the car turns into a pumpkin?” asked Kristalina Georgieva. The IMF director-general also highlighted the role of “anchor” that the US debt market represents for the global financial system, underlining the need to “keep that anchor in place”.

The leader of the majority of the Republican Party in the US House of Representatives, Kevin McCarthy, acknowledged today that there has been progress in negotiations to increase the country’s debt ceiling and avoid a ‘default’.

“I think there was progress last night. We have to go even further,” McCarthy said, referring to efforts by Republican and Democratic Party negotiators who are trying to reach a budget deal.

If the US debt ceiling is not raised, the federal government will technically go into ‘default’, running out of cash to pay its bills, which analysts warn could have dramatic consequences for the national and global economy. The deadline is on Thursday.

The IMF slightly revised upwards its growth forecast for the US economy, now pointing to 1.7% against 1.6% expected in April.

In its assessment of the US economy, the organization pointed to the resilience it has shown – anchored in data on employment, productivity and growth – but stressed that this resilience “is a double-edged sword”, which has as its counterpart the maintenance inflation at historically high levels.

The IMF expects inflation to remain above the Fed’s medium-term target throughout 2024 (in 2023 it should be around 4%), so bringing it to the 2% route “will require a prolonged period of restrictive monetary policy” .

A situation that should cause interest rates to remain at high levels for “longer”.

The IMF also considers that the US has to do more to reduce the debt and the deficit, suggesting a range of measures that increase tax revenues and reduce expenditures.