WASHINGTON, June 14 (UPI) -- The International Monetary Fund said Friday that the U.S. economic recovery "remained tepid," and that it was too early to roll back stimulus measures.
But the IMF suggested growth could be accelerated with a more gradual pace of fiscal consolidation.
"There are signs the U.S. recovery is gaining ground and becoming more durable. The IMF's advice is to slow down, but hurry up, meaning slow the fiscal adjustment this year, which would help sustain growth and job creation, but hurry up with putting in place a medium-term road map to restore long-term financial sustainability," said Christine Lagarde, IMF managing director said.
The IMF dropped its forecast for economic growth for the year to 1.9 percent following 2.2 percent growth in 2012. For 2014, the U.S. economy is expected to grow 2.7 percent.
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The organization previously forecast 3 percent growth for 2014, but said sequestration budget cuts would slow the recovery down.
"The U.S. recovery has remained tepid over the past year, but underlying fundamentals have been gradually improving," the IMF said in an annual assessment of the U.S. economy.
The IMF also said that its growth projects were based on a few assumptions, including a reduction in the government deficit by 2.5 percent in 2013, which would subtract "between 1.25 to 1.75 percentage points from growth."
The IMF also assumed that the next debate over the debt ceiling would not be disruptive to the economy and that the U.S. Federal Reserve would continue with its $85 billion per month asset purchasing program.
The IMF said the unemployment rate would likely hover close to 7.5 percent this year with "employment growth projected to pick up late this year and in 2014, fostered by an acceleration of output growth."
The IMF warned that government spending cuts and higher taxes at the same time "might prove to be a stronger headwind to consumer demand over the next few quarters."
That would result in a slower economy, which would slow down employment growth, the IMF said.
Laying out the ingredients for a stronger recovery, the IMF said that its staff recommended "repealing the sequester and adopting a more balanced and gradual pace of fiscal consolidation in the short term."
The IMF also recommended "expeditiously raising the debt ceiling to avoid a severe shock to the U.S. and the global economy;" and making long-term preparations for unwinding the highly accommodating monetary strategies now in place.
