The International Monetary Fund (IMF) in a statement on the conclusion of an annual review of the US economy that was issued Monday, cut its forecast of economic growth in 2014 and it said inflation will remain below the Federal Reserve's 2% target through 2017. It recommends the central bank should keep its policy rate near zero even longer than investors now expect.
The IMF cut its forecast for US economic growth by 0.8 percentage point to 2%, citing a harsh winter, a struggling housing market and weak international demand for the country's products.
Every year since the recession ended in mid-2009, new year optimism on the recovery has faded as the year progressed and this year is no different - read our report Monday on the impact of debt in the US and Europe.
The add to the gloom this year, the Fund says in respect of coming years:
The US economy grew an average inflation-adjusted 3% between 1948 and 2007.
At a press conference, Christine Lagarde, managing director, supported the Obama administration call for a rise in the minimum wage, a higher earned income tax credit (EITC) and more spending on infrastructure.
“We recommend an expansion of the earned income tax credit. It’s a programme that works and has been around for the last 40 years,” Lagarde said. The credit gives a tax refund mainly to working low-income families with children.
“To complement the expansion of the EITC we also
argue for an increase in the minimum wage which, in the US, relative to median
wages is among the lowest in advanced economies, 38%. So two key measures,
expansion of the EITC coupled with an increase in the minimum wage.,” Lagarde
said, adding that the US level was among the lowest in rich countries, relative
to median wages.
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