IMF Urges U.S. to Hold Off on Rate Cuts, Increase Taxes Amid Rising Debt

The IMF advises the U.S. Federal Reserve to postpone interest rate cuts until late 2024 and calls for tax increases to address mounting federal debt. Highlighting strong economic growth, the IMF emphasizes fiscal prudence, suggesting tax reforms and expenditure adjustments to stabilize the economy. Recommendations include raising gasoline taxes and revisiting tax cuts.

The International Monetary Fund (IMF) has urged the U.S. Federal Reserve to delay cutting interest rates until late 2024, while recommending tax hikes to combat rising federal debt. This advice follows a robust U.S. economic expansion, highlighting the need for fiscal prudence despite ongoing economic growth.

IMF chief economist Pierre-Olivier Gourinchas noted that the strong labor market allows the Fed more time to adjust monetary policy. However, he emphasized the importance of waiting until the end of 2024 to prevent unexpected inflationary pressures. The report also discusses the timing of upcoming Fed meetings, anticipating significant fiscal deliberations ahead of the U.S. presidential election.

The IMF's report underscored the necessity of progressive tax reforms, even for households earning under $400,000, to arrest the burgeoning debt-to-GDP ratio projected to hit 109.5% by 2029. The Fund recommended multiple strategies, including eliminating poorly targeted tax exemptions and indexing Social Security benefits to the chained consumer price index.

(With inputs from agencies.)