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IMF reduces U.S. outlook because of policy uncertainties

By Allen Cone
Traders work on the floor after the opening bell at the New York Stock Exchange on Wall Street in New York City on Thursday. Photo by John Angelillo/UPI
Traders work on the floor after the opening bell at the New York Stock Exchange on Wall Street in New York City on Thursday. Photo by John Angelillo/UPI | License Photo

June 27 (UPI) -- The International Monetary Fund reduced its growth forecasts for the U.S. economy because of the uncertain effectiveness of White House policies.

The Washington-based fund released a report Tuesday that expects growth of 2.1 percent this year and in 2018 after previously estimating 2.3 percent in 2017 and 2.5 percent next year. It had increased expectations with the arrival of Donald Trump as president.

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The White House had targeted 3 percent growth by 2020. The U.S. economy achieved that pace in the early 1980s, when it was recovering from a deep recession.

Last year's growth rate was 1.6 percent.

"The consultation revealed differences on a range of policies and left open questions as to whether the administration's proposed policy strategies are best suited to achieve their intended purpose," the IMF said in the report. "Nonetheless, there was agreement that the policy package will need to incorporate reforms on multiple, macro-critical fronts. These include building a more efficient tax system, improving education and developing skills, reprioritizing federal spending, improving the effectiveness of the regulatory system and reforming the immigration and welfare systems."

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The organization said it supported Trump's policies of tax reform, family leave and investment in infrastructure to boost growth but cautioned against other measures. It urged the United States to keep its current system of financial oversight, free trade and health insurance coverage.

Alejandro Werner, director of the IMF's Western Hemisphere Department, said at a press briefing in Washington that the United States faces problems that include an aging population, low productivity growth and a labor market already back at full employment. Consequently, "we have removed the assumed fiscal stimulus from our forecast," he said.

"The U.S. economic model is not working as well as it could in generating broadly shared income growth," the report said. "It is burdened by a rising public debt. The U.S. dollar is moderately overvalued around 10-20 percent."

Farther longer range, growth is forecast to slip to 1.9 percent in 2019 and 1.8 percent in 2020.

The IMF notes the United States has had the third-longest expansion since 1850, with "persistently strong" job growth.

To improve growth, the IMF again suggested the Federal Reserve should let price grow modestly overshoot its inflation goal, a move that would "provide valuable insurance against the risks of disinflation and having to bring the federal funds rate back to zero."

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IMF recommended revenue increase with a "broad-based" federal consumption tax, a higher federal gas tax and put in place a carbon tax on greenhouse-gas emissions. These policies are not supported by the Republican-controlled Congress.

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