Reuters (Link) - Mark Felsenthal (January 8, 2011)
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 here. “It is critical to lay out the basis for credible medium-term fiscal adjustment,” he said.
Lipsky praised recent steps by U.S. 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 by 2013.
Both the monetary and fiscal stimulus measures have been controversial. The Federal Reserve in November provoked outrage with a $600 billion bond-buying plan that both domestic and international critics protested would weaken the dollar and lay the groundwork for a burst of inflation.
President Barack Obama and Congress agreed in December to a $858 billion tax package designed to support economic growth, but bond markets quailed over the its deepening of the $1.3 trillion budget deficit.