(Bloomberg) — The International Monetary Fund leveled an unusually direct criticism at US policymakers Tuesday, saying the country’s recent standout performance among advanced economies was in part driven by an unsustainable fiscal policy.
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“The exceptional recent performance of the United States is certainly impressive and a major driver of global growth,” the IMF said in its annual World Economic Outlook. “But it reflects strong demand factors as well, including a fiscal stance that is out of line with long-term fiscal sustainability.”
Washington’s overspending, the report said, risks reigniting inflation and undermining long-term fiscal and financial stability around the world by ratcheting up global funding costs.
“Something will have to give,” the IMF warned.
US deficit spending has been driven in recent years by Covid-related stimulus, aggressive investments in infrastructure and clean energy, and exploding interest costs. Debt held by the public is expected to reach $45.7 trillion, or 114% of GDP by 2033, up from 97% at the end of 2023, according to the Congressional Budget Office.
Treasury Secretary Janet Yellen has so far sought to downplay the growing worries. Debt sustainability, she has said repeatedly, is best measured by the cost to service debt as a percentage of GDP, adjusted for inflation. Real net interest expenses will remain below 2% of GDP for the coming decade, according to White House projections.
Yet that forecast is vulnerable, Yellen has conceded, should interest rates remain elevated.
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