The International Monetary Fund released its annual review of the United States economy on Friday. The fund expects the world's largest economy to keep on growing at a steady 1.9 percent clip this year before accelerating sharply in 2014 and 2015.
Those projections are pretty mainstream. What is fascinating is how explicitly the fund is assailing the fiscal policy that the U.S. government has enacted. The sequestration spending cuts, IMF economists argue, have triggered a sudden onset of austerity that is slowing growth this year while doing nothing to improve the nation's longer-term fiscal situation.
"On the fiscal front, the deficit reduction in 2013 has been excessively rapid and ill-designed," the review says. "In particular, the automatic spending cuts (“sequester”) not only exert a heavy toll on growth in the short term, but the indiscriminate reductions in education, science, and infrastructure spending could also reduce medium-term potential growth."
And the fund's economists make no bones about their preference for something along the lines of President Obama's proposed budget. "These cuts should be replaced with a back-loaded mix of entitlement savings and new revenues, along the lines of the Administration’s budget proposal."
And in a accompanying statement, IMF managing director Christine Lagarde showed no hesitation in telling American politicians what they ought to do.
"“There are signs that the U.S. recovery is gaining ground and becoming more durable," Lagarde said. "However, it has a way to go before returning to full strength. The IMF’s advice is to slow down, but hurry up: meaning slow the fiscal adjustment this year — which would help sustain growth and job creation — but hurry up with putting in place a medium-term road map to restore long-run fiscal sustainability,” Lagarde said.
None of this advice is terribly surprising to those who have listened to what mainstream economists at places like the Federal Reserve and the private economic forecasting shops have recommended. But we can now officially add the International Monetary Fund to the list of those assailing the sequestration and its near-term impact on the U.S. economy.