WASHINGTON, July 17 (UPI) -- U.S. policymakers must lift the federal debt ceiling soon, for the sake of the U.S. and world economies, the International Monetary Fund said.
Congress should raise the legal cap on the amount of money the federal government can borrow "well ahead" of the projected year-end deadline to "mitigate risks of financial market disruptions and a loss in consumer and business confidence," IMF economists warned in an update to the fund's regular World Economic Outlook.
U.S. House Speaker John Boehner, R-Ohio, vowed at a fiscal summit meeting in May to hold up another increase in the federal debt ceiling unless it was offset by larger spending cuts.
The monetary fund also projected that failing to extend at least some Bush-era tax cuts, and to reverse some automatic, across-the-board government spending cuts looming in December and January, would cause the economy to stall on the brink of recession, "with significant spillovers."
Under current law, the end of the year will bring about federal tax increases as U.S. tax cuts originally passed during the presidency of George W. Bush expire, along with temporary payroll tax reductions.
The government is scheduled to cut federal spending starting in January because of measures set in motion by Congress' inability last December to come up with plans for long-term fiscal restructuring.
In addition to those components of the so-called fiscal cliff, a federal extension for unemployment benefits ends this year, meaning newly unemployed workers in most states will receive no more than 26 weeks of jobless benefits, the National Employment Law Project says.
Without extended jobless benefits, unemployed workers will have less disposable income, cutting their spending -- and reducing employers' need to hire more workers, The New York Times says.
The IMF said the United States could experience considerably higher borrowing costs if policymakers don't cut the national deficit in the next three years.
"Uncertainties about the fiscal outlook in the United States present a particular latent risk to global financial stability," said Jose Vinals, director of the IMF's monetary and capital markets department.
The fund reduced its estimates of U.S. growth this year and next by 1/10 of a percentage point, anticipating the economy will expand 2 percent this year and 2.3 percent next year.
The IMF maintained its forecast of global economic growth this year at 3.5 percent, but cut its 2013 forecast to 3.9 percent, down from the 4.1 percent estimate it made in April.
The world economy expanded 5.3 percent in 2010.
Speaking globally, IMF Chief Economist Olivier Blanchard said: "More worrisome than these revisions to the baseline forecast is the increase in downside risks.
"The global recovery continues, but it is a weak recovery and indeed a bit weaker than we forecast last April," he said.
Resolving Europe's sovereign debt crisis remains "the utmost priority," IMF economists said, adding the troubled economies of Spain and Italy could be key threats to the global economy.
The IMF analysis pointed to new concerns about the developing world -- nations whose economies had helped prop up global growth but are now slowing and may be nearing crises of their own.
In China, India and Brazil, for example, lending grew so fast in recent years that the current slowdown is raising fears bad loans or falling asset prices could create a banking crisis in those countries, The Washington Post said.
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