The International Monetary Fund (IMF) has claimed the large federal budget cuts introduced in the US earlier this year have been “excessively rapid and ill-designed” and the body has now urged the US government to review its strategy.
According to the IMF the current programme of cuts to US government spending put in place during the furore over the ‘fiscal cliff’ will cause harm to the country’s growth rate this year.
It has forecast growth of 1.9% in 2013 for the US, but said this figure could be as much as 1.75% points higher without the rapid tightening of US fiscal policy. Global markets are simultaneously worried about what the Fed might say tomorrow (Wednesday) about how and when it plans to ease back quantitative easing and amend monetary policy later in the year.
“These [fiscal] cuts should be replaced with a back-loaded mix of entitlement savings and new revenues, along the lines of the administration’s budget proposal,” the IMF said in its annual report.
However, while the IMF has said the economic recovery in the US had been “tepid”, it says the overall fundamentals have been improving and the US is set for continued growth.
A rebound in house prices as well as a boost in US construction activity, stronger household balance sheets and an improved labour market have also boosted confidence in the US markets.
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