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IMF: U.S. economic growth likely to speed up

Dec. 23, 2013 at 1:00 AM   |   Comments

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WASHINGTON, Dec. 23 (UPI) -- U.S. economic growth is likely to speed up next year, with the budget deal and Federal Reserve bond-buying pullback, the International Monetary Fund chief said.

As a result, the economic organization is raising its 2014 U.S. forecast, Managing Director Christine Lagarde told NBC's "Meet the Press."

"We see a lot more certainty for 2014," she said.

"There has been good action taken by Congress to eliminate the fear about the budget and to reduce the sequestration. We see the Fed having taken some very well-communicated action concerning the tapering of the program, and those are good signs -- in addition to which we see some good numbers: Growth is picking up and unemployment is going down," she told the program.

"So all of that gives us a much stronger outlook for 2014, which brings us to raising our forecast," she said.

Lagarde did not say specifically what the new forecast was.

The fund -- which seeks to secure international financial stability, foster global monetary cooperation, promote sustainable economic growth and reduce poverty -- said in October the U.S. gross domestic product, the total value of goods and services produced, would likely expand 2.5 percent in 2014.

The IMF is to update its World Economic Outlook in mid-January.

Sustained 3 percent GDP growth is seen by many economists as a game-changing positive sign.

"Three percent's the magic number," Joseph LaVorgna Deutsche Bank AG's chief U.S. economist, told Bloomberg Businessweek in March.

President Barack Obama said at a year-end news conference Friday he believes 2014 "can be a breakthrough year" for the U.S. economy.

The GDP grew a revised annual rate of 4.1 percent in the third quarter, the fastest pace in almost two years, the Commerce Department said Friday. The unemployment rate fell to 7 percent in November, the lowest reading since Obama took office, the Labor Department said Dec. 6.

Congress approved a budget deal on spending levels last week, ending the chances for two years of another government shutdown. And the Fed said it would pare back its $85 billion-a-month bond-buying program $10 billion starting next month because of strengthening economic growth.

All this will likely give investors and employers new economic confidence, Lagarde told "Meet the Press."

"Seeing a budget deal, seeing tapering by the Fed, which is a sign of confidence in the real economy, should lead them to invest, to hire and to be more confident into the future of the U.S. economy," she said.

At the same time, Lagarde said the nation's record income inequality -- with the top 10 percent of earners taking more than half the country's total income -- made economic growth more fragile and less diverse and productive over time.

"There is a clear indication that rising inequality leads to less sustainable growth," she said. "Not to mention the fact that the social fabrics of society can be at stake. So reducing inequality, making sure that people have a job, making sure that there is growth, that there is adequate redistribution through various systems is important."

Lagarde warned of negative consequences of another political battle over the U.S. debt ceiling.

The government is to hit its existing borrowing limit Feb. 7, four months after Congress suspended the ceiling until that date. The government is expected to run out of room to borrow about a month later, the Treasury Department has said.

Some Republicans have said they intend to fight over conditions to raise the debt ceiling.

"The budget deal that was cut at year end is a very good sign of responsibility, accountability and realism," Lagarde said. "I, for myself, certainly hope that in February, Congress will be equally responsible and will not threaten the recovery with yet another debate about whether or not the U.S. will honor [its debts] or default."

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