A top IMF official warned on Saturday that the United States must start down a budget deficit-cutting path relatively soon or face crushing debt service costs as interest rates rise. "Time's a-wasting," John Lipsky, first deputy managing director of the International Monetary Fund, said in an address at the annual American Economics Association conference.
"It is critical to lay out the basis for credible medium-term fiscal adjustment." Lipsky praised recent steps by US central bankers and politicians to support a weak economic recovery with expansionary monetary and fiscal policies. However, he said those steps make it less likely the United States can meet goals of cutting its deficit in half.
Although near-term fiscal consolidation measures could crimp economic growth and will be politically controversial, in the longer term they will fuel stronger growth, he said. The risk is that if the United States cannot soon trim its deficit, doubts about the US fiscal position could push longer-term interest rates higher, Lipsky said.
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