IMF Downgrades US Economic Forecast
The International Monetary Fund (IMF) downgraded its forecast for the US economy this year and said America should raise the minimum wage to help the poor, offer paid maternity leave to encourage more women to work and overhaul the corporate tax system to boost productivity.
In its annual checkup of the US economy, the IMF Wednesday predicted 2.2% US growth this year, down from 2.4% in Y 2015. In April, the international lending agency had forecast 2.4% growth for Y 2016. Like the US Fed the IMF is often over optimistic.
The American economy got off to a slow start this year, expanding at a lackluster 0.8% annual pace from January through March. A strong Buck hurt exporters by making their goods costlier in foreign markets. Energy companies slashed investment in the face of low Crude Oil prices.
Ms. Lagarde also said the US faces longer term economic problems, including an aging labor force, weak productivity growth and growing income inequality.
The US could improve productivity by overhauling the corporate tax system, reducing tax rates and eliminating loopholes that encourage inefficiency, the IMF said.
To combat widening income inequality and help the poor, it recommended a higher minimum wage and expanded tax breaks for low-income Americans.
The IMF also believes the US Fed should move slowly to raise US interest rates and to allow US inflation to temporarily overshoot its annual target of 2%.
Low inflation rates can discourage consumer spending, which accounts for about 70% of US economic activity. When prices remain flat, shoppers do not have to worry about paying higher prices and may even delay purchases, thinking they will save money if they wait.