International Monetary Fund (IMF) chief Kristalina Georgieva urged U.S. policymakers Thursday to take advantage of the U.S. recovery from the pandemic and pay off the deficit.
Georgieva said policymakers should put the U.S. national deficit on a “decisive downward path,” in part to ensure investors do not start losing interest in U.S. treasuries.
She complimented legislation enacted under President Biden and former President Trump that offered stimulus to the economy during the pandemic. But she said actions need to be taken on the deficit, as well.
“This legislation will have a lasting positive impact in reshaping the U.S. economy. It needs to be complemented, however, with actions to put public debt-to-GDP on a decisive downward path,” she said during a Thursday press conference.
She cautioned that policymakers should be “looking for savings in non-entitlement spending,” avoiding safety net programs like Social Security and Medicare.
While Georgieva sent a clear message about U.S. fiscal prudence, she noted the timeframe for deficit reduction was not immediate.
“We are proposing a fairly long period of time over which these reductions should take place. We are talking about basically within this decade. We are not talking about next year,” she said.
Despite higher interest rates set by the Federal Reserve that have made the cost of paying for the national deficit more expensive, Georgieva described debt servicing costs as remaining “quite manageable.”
“We’re far away from any rollover risk in the U.S.,” IMF Western Hemisphere Director Rodrigo Valdés said.
The IMF has a more positive outlook for U.S. inflation than the Fed does, expecting it to renormalize to 2 percent by the middle of next year. The Fed does not expect inflation to normalize to 2 percent until 2026.
“Last year, we were a bit more optimistic. Last year, we were proven to be right,” Georgieva said.
Georgieva did not address the national economic mood in her assessment of the U.S. economy, but she did note dissatisfaction regarding globalization in both the U.S. and Europe.
“The decades of globalization have led to overall positive outcomes but negative consequences for some communities, including here in the United States, with jobs disappearing as a result of cheap imports from other countries. … We have been somewhat complacent to reflect on that unfairness,” she said.